Question
In: Finance
Stocks A and B have the same required return and the same price,$25. Stock A's...
Stocks A and B have the same required return and the same price, $25. Stock A's dividend is expected to grow at a constant rate of 10% per year, while Stock B's dividend is expected to grow at a constant rate of 5% per year. Which of the following statements is correct?
a. Stock A's expected dividend at t = 1 is only half that of Stock B.
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. Currently, the two stocks have the same price, but over time Stock B's price passes that of Stock A.
Solutions
Expert Solution
The correct option is "C".
Say stock A offers $100 as Dividends, and Stock "B" offers $105 as dividends. So if they grow at 5% and 10%, then Stock A will not be twice Stock B's dividend. It just implies that the dividend yield of Stock A will be more than Stock B.
jeff jeffy answered 2 years agoRelated Solutions
REALIZED RATES OF RETURN Stocks A and B have the following historical returns: Year Stock A's...
REALIZED RATES OF RETURN
Stocks A and B have the following historical returns:
Year
Stock A's Returns, rA
Stock B's Returns, rB
2011
- 15.90%
- 16.50%
2012
33.50
21.20
2013
11.25
31.60
2014
- 6.00
- 8.80
2015
34.00
29.35
Calculate the average rate of return for stock A during the
period 2011 through 2015. Round your answer to two decimal
places.
%
Calculate the average rate of return for stock B during the period
2011 through 2015. Round...
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's...
Stocks A and B have the following historical returns:
Year
Stock A's Returns,
rA
Stock B's Returns,
rB
2011
- 22.40%
- 15.60%
2012
27.75
19.70
2013
10.00
37.00
2014
- 5.00
- 9.90
2015
23.75
2.90
a. Calculate the average rate of return for stock A during the
period 2011 through 2015. Round your answer to two decimal
places.
%_________
Calculate the average rate of return for stock B during the period
2011 through 2015. Round your answer to...
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's...
Stocks A and B have the following historical returns:
Year
Stock A's Returns,
rA
Stock B's Returns,
rB
2014
(16.20
%)
(13.00
%)
2015
33.50
24.10
2016
15.00
30.90
2017
(1.75
)
(9.60
)
2018
27.25
25.40
Calculate the average rate of return for each stock during the
period 2014 through 2018. Round your answers to two decimal places.
Stock A: %
Stock B: %
Assume that someone held a portfolio consisting of 50% of Stock
A and 50% of Stock B....
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's...
Stocks A and B have the following historical returns: Year Stock
A's Returns, rA Stock B's Returns, rB 2013 - 19.40% - 17.90% 2014
37.75 23.80 2015 15.25 35.70 2016 - 5.50 - 6.70 2017 26.25
19.45
A. Calculate the average rate of return for stock A during the
period 2013 through 2017. Round your answer to two decimal places.
%
Calculate the average rate of return for stock B during the
period 2013 through 2017. Round your answer to...
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's...
Stocks A and B have the following historical returns:
Year Stock A's Returns, rA Stock B's Returns, rB
2014 (18.50 %) (13.50%)
2015 32.50 19.90
2016 16.75 25.50
2017 (5.00 ) (12.70 )
2018 27.50 34.05
a. Calculate the average rate of return for each stock during
the period 2014 through 2018. Round your answers to two decimal
places.
Stock A: % Stock B: %
b. Assume that someone held a portfolio consisting of 50% of
Stock A and 50%...
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's...
Stocks A and B have the following historical returns:
Year
Stock A's Returns, rA
Stock B's Returns, rB
2013
- 23.10%
- 16.70%
2014
39.25
28.30
2015
16.50
37.90
2016
- 1.75
- 7.70
2017
26.25
15.35
a Calculate the average rate of return for stock A during the
period 2013 through 2017. Round your answer to two decimal
places.
Calculate the average rate of return for stock B
during the period 2013 through 2017. Round your answer to...
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's...
Stocks A and B have the following historical returns:
Year
Stock A's Returns, rA
Stock B's Returns, rB
2011
- 23.90%
- 12.00%
2012
24.75
27.40
2013
11.75
38.40
2014
- 1.25
- 6.50
2015
24.75
-11.20
Calculate the average rate of return for stock A during the
period 2011 through 2015. Round your answer to two decimal
places.
%
Calculate the average rate of return for stock B during the period
2011 through 2015. Round your answer to two...
Stock A's stock has a beta of 1.30, and its required return is 14.75%. Stock B's...
Stock A's stock has a beta of 1.30, and its required return is
14.75%. Stock B's beta is 0.80. If the risk-free rate is 4.75%,
what is the required rate of return on B's stock? (Hint:
First find the market risk premium.)
Select the correct answer.
a. 10.86%
b. 10.88%
c. 10.90%
d. 10.92%
e. 10.94%
You have a portfolio of three stocks: Stock A, Stock B, and Stock C. The expected return...
You have a portfolio of three stocks: Stock A, Stock B,
and Stock C. The expected return of Stock A is 8%, the
expected return of Stock B is 10%, and the expected return of Stock
C is 12%. The expected return of the portfolios is
10.5%. If the weight of asset B is three times the weight of asset
A, what are the weights for the three assets?
Everyone agrees stock A is riskier than stock B, but they have the same expected return....
Everyone agrees stock A is riskier than stock B, but they have
the same expected return.
(a) Which would you prefer to buy? Why?
(i) Stock A.
(ii) Stock B.
(b) In order for someone to want to hold the stock, you don't
like, what would have to happen to the price of that stock,
assuming the other stock remains unchanged? Why?
(i) Price goes up.
(ii) Price goes down.
(c) If the price changes as described in (b), what...
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