What is stock valuation under equilibrium situation

Reference no: EM1311048

What is Stock valuation under equilibrium situation.

Stocks A and B have the following data. The market risk premium is 6.0% and the risk-free rate is 6.4%. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A B

Beta 1.10 0.90

Constant growth rate 7.00% 7.00%

a. Stock A must have a higher stock price than Stock B.

b. Stock A must have a higher dividend yield than Stock B.

c. Stock B's dividend yield equals its expected dividend growth rate.

d. Stock B must have the higher required return.

e. Stock B could have the higher expected return.

Reference no: EM1311048

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