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    Stock A and Stock B's Beta

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    Stock A has a beta of 1.1 and Stock B's beta is 0.9. The market risk premium is 6% and the risk-free rate is 6.3%. Both stocks have a constant dividend growth rate of 7%. If the market is in equilibrium, which of the following statements is Correct?
    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

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    Solution Preview

    Stock A has a beta of 1.1 and Stock B's beta is 0.9. The market risk premium is 6% and the risk-free rate is 6.3%. Both stocks have a constant dividend growth rate of 7%. If the market is in equilibrium, which of the following statements is Correct?

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

    Solution Summary

    This solution is comprised of a detailed explanation to answer which of the following statements is Correct.

    $2.19

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