If a share is correctly priced then you know that ________.

Question

Quizplus · Accepted Answer

If a share is correctly priced, the sum of the expected capital gain and dividend yield must be equal to the share's required rate of return. This is because investors will only be willing to pay the current market price for the share if they can expect to earn at least their required rate of return on their investment. Option A is incorrect since the dividend payout ratio is not necessarily relevant in determining whether a share is correctly priced. Option B is incorrect because the growth rate in earnings and dividends may not necessarily be equal to the share's required return. Option D is incorrect because the present value of growth opportunities is not necessarily equal to the value of assets in place.

If a Share Is Correctly Priced Then You Know That