Stocks A and B have the same required return and the same price, $25. Stock A's dividend is expected to grow at a constant rate of 10% per year, while Stock B's dividend is expected to grow at a constant rate of 5% per year. Which of the following statements is correct?

Select one:

a. Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.

b. Stock A's expected dividend at t = 1 is only half that of Stock B.

c. Currently the two stocks have the same price, but over time Stock B's price passes that of Stock A.

d. Stock A has a higher dividend yield than Stock B.

Answer rating: 100% (QA)

correct answer is option b Stock As expected dividend at t 1 is only h... View the full answer