Question
Stocks A and B have the same required return and the same price, $25. Stock A's dividend is expected to grow at a constant rate
Stocks A and B have the same required return and the same price, $25. Stock A's dividend is expected to grow at a constant rate of 10% per year, while Stock B's dividend is expected to grow at a constant rate of 5% per year. Which of the following statements is correct?
a. Stock A's expected dividend at t = 1 is only half that of Stock B.
b. Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.
c. Stock A has a higher dividend yield than Stock B.
d. Currently, the two stocks have the same price, but over time Stock B's price passes that of Stock A.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started