Stock market is efficient and stocks are in equilibrium

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Reference no: EM131932894

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

Expected return 15% 15%

price $25 $40

Expected growth (constant) 10% 5%

a. Currently the two stocks have the same price, but over time Stock B's price will pass that of A.

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. The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist.

e. Stock A's expected dividend at t = 1 is only half that of Stock B.

Please provide the correct option with explaination.

Reference no: EM131932894

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