Stock A and Stock B’s Beta
November 15th, 2022
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