Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? $$\begin{array} { l c c }
\text { } & \underline{ \mathrm { A } } & \underline{ \mathrm { B } } \
\text { Price } & \$ 25 & \$ 25\
\text { Ejgidected growth (canstant) } & 10 \% & 5 \% \
\text { Required return } & 15 \% & 15 \%
\end{array}$$

Question

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? $$\begin{array} { l c c } 
\text {  } & \underline{ \mathrm { A } }  &  \underline{ \mathrm { B } }  \
\text { Price } &  \$ 25 & \$ 25\
\text { Ejgidected growth (canstant) } & 10 \% & 5 \% \
\text { Required return } & 15 \% & 15 \%
\end{array}$$

Quizplus · Accepted Answer

Statement e is correct,because if both stocks have the same price and the same required return,and A's growth rate is twice that of B,then A's dividend and dividend yield must be half that of B.This point is illustrated with the following example. $\begin{array}{lcc}
\text { } & \underline{\mathrm{A}} & \underline{\mathrm{B}} \
\mathrm{Price } & \$ 25 & \$ 25 \
\mathrm{g} & 10 \% & 5 \% \
\mathrm{r}& 15 \% & 15 \% \
\text { Div. Yield }=\mathrm{r}-\mathrm{g}=  & 5 \% & 10 \% \
\mathrm{D}_{1}=\mathrm{P}(\text { Div Yield })= &  \$1.25& \$2.50 \
\end{array}$

Stocks a and B Have the Following Data A) Stock a Has a Higher Dividend Yield Than Stock