Stocks A and B have the following data. The market risk premium is 6.0% and the risk-free
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Question:
Stocks A and B have the following data. The market risk premium is 6.0% and the risk-free rate is 6.4%. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
A B
Beta 1.10 0.90
Constant growth rate 7.00% 7.00%
a. Stock A must have a higher stock price than Stock B.
A B
Beta 1.10 0.90
Constant growth rate 7.00% 7.00%
a. Stock A must have a higher stock price than Stock B.
b. Stock A must have a higher dividend yield than Stock B.
c. Stock B’s dividend yield equals its expected dividend growth rate.
d. Stock B must have the higher required return.
e. Stock B could have the higher expected return.
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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