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? ABBeta1.10 0.90 Constant growth rate7.00% 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.
Answer: B
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