3 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,
3 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 dividend yield than Stock B.
b. Stock B’s dividend yield equals its expected dividend growth rate.
c. Stock B must have the higher required return.
d. Stock B could have the higher expected return.
e. Stock A must have a higher stock price than Stock B.
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