1. Two stocks have the same market risk and the same amount of most recent dividend. The first stocks dividend is expected to grow at 6% per year, whereas the second stocks dividend is expected to grow at -6% per year. Both stocks are fairly valued by the market. Which of the following statements is correct?

1. The first stock is a better investment than the second stock
2. The first stock has a higher dividend yield than the second stock
3. The first stock has a higher expected return than the second stock
4. None of the above is correct

Answer:

Explanation: