19. Which of the following statements is correct if stock prices are in equilibrium? (a) Other things held constant, the higher a companys beta coefficient, the lower its required rate of return. (b) Assume that the required return on a given stock is 13%. If the stocks dividend is growing at a constant rate of 5%, its expected dividend yield is 5%. (c) A stocks dividend yield can never exceed its expected growth rate. (d) A required condition for using the constant growth model is that the stocks expected growth rate exceeds its required rate of return. (e) The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

20. 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. (b) Stock A must have a higher dividend yield than Stock B. (c) Stock Bs dividend yield equals its expected dividend growth rate. (d) Stock B must have the higher required return. (e) The expected return of Stock B is 10%.