Finance

The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

 

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1. If Stock X and Stock Y have the same current dividend and the same expected dividend growth rate, then Stock Y must sell for a higher price.

2. The stocks must sell for the same price.

3. Stock Y must have a higher dividend yield than Stock X.

4. If Stock Y and Stock X have the same dividend yield, then Stock Y must have a lower expected capital gains yield than Stock X.

5. If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate.

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