Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT?
A. If Stock A has a lower dividend yield than Stock B, then its expected capital gains yield must be higher than Stock B's.
B. Stock B must have a higher dividend yield than Stock A.
C. Stock A must have a higher dividend yield than Stock B.
D. If Stock A has a higher dividend yield than Stock B, then its expected capital gains yield must be lower than Stock B's.
E. Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B.
Answer: A
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