Explain how you reached the answer or show your work if a mathematical calculati

Question

Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. 2. 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? A B Price $25 $25 Expected growth (constant) 10% 5% Required return 15% 15% a. Stock A's expected dividend at t = 1 is only half that of Stock B. b. Stock A has a higher dividend yield than Stock B. c. Currently the two stocks have the same price, but over time Stock B's price will pass that of A. d. Since Stock A

Explanation / Answer

c is correct answer. Currently the two stocks have the same price, but over time Stock B's price will pass that of A because expected growth of Stock A's is higher then Stock B's, so over the time price of Srock B will be less then A's

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