Question
Suppose that company ABC's last dividend was $5 per share, and company DEF's last dividend was $10 per share. Analysts expect that company ABC's dividend
Suppose that company ABC's last dividend was $5 per share, and company DEF's last dividend was $10 per share. Analysts expect that company ABC's dividend will grow at a constant rate of 2%, and company DEF's dividend will grow at a constant rate of 3%. Which of the following must be true?
a) The stock price of company ABC is higher than that of company DEF
b) The stock price of company DEF is higher than that of company ABC
c) Company DEF's growth rate must decline at some point.
d) Given this information, no conclusion can be reached about the prices of company ABC and DEF.
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