Define the payout yield of a stock to be its annual (aggregate) dividend, plus its annual dollar value of share repurchases, minus its annual dollar value of share issuances, all divided by its current market capitalization (share price times shares outstanding). Dividends + Repurchases - Issuances payout yield = Market cap (a) Suppose there are two otherwise identical firms having different expected returns due to risk. Does the firm with higher expected returns have a higher or lower payout yield? Briefly explain. (3 points) (b) Imagine you discovered that in the past 90 years, stocks with high payout yields have had higher future returns than stocks with low payout yields. You had been holding a portfolio almost equally weighted on high-payout-yield stocks and low- payout-yield stocks. Given your finding, how would you adjust your portfolio if you believe what you found is mispricing? Choose one of the following. (4 points) (i) Increase weight on stocks with low payout yields, decrease weight on stocks with high payout yields (ii) Decrease weight on stocks with low payout yields, increase weight on stocks with high payout yields. (iii) Change nothing. Briefly explain