• Please give an explanation as to why the statement chosen is correct.

Question: Stock A has a required return of 8%, while Stock B has a required return of 6%. Which of the following statements is CORRECT?

a. If Stock B and Stock A have the same dividend yield, then Stock B must have a lower expected capital gains yield than Stock A.

b. If Stock A and Stock B have the same current dividend and the same expected dividend growth rate, then Stock A must sell for a higher price.

c. The stocks must sell for the same price.

d. If the market is in equilibrium, and if Stock B has the lower expected dividend yield, then it must have the higher expected growth rate.

e. Stock A must have a higher dividend yield than Stock B.

• Please show Formula as to how you got to this answer (an example if possible).