Question

UESTION 13 Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Price $25 $40 Expected growth 7% 9% Expected return 10% 12% ​ a. The two stocks should have the same expected dividend. b. The two stocks could not be in equilibrium with the numbers given in the question. c. A's expected dividend is $0.50. d. B's expected dividend is $0.75. e. A's expected dividend is $0.75 and B's expected dividend is $1.20.

Answer 1

Option "E" is the correct answer to the following question.

Given:

Particular A B

Market price $25 $40

Expected return 10% 12%

Expected growth 7% 9%

Computation:

Dividend =Market price (Expected return - Expected growth)

Dividend for Stock A = $25(10% - 7%)

Dividend for Stock A = $25(3%)

Dividend for Stock A = $0.75

Dividend for Stock B = $40(12% - 9%)

Dividend for Stock B = $40(3%)

Dividend for Stock B = $1.2