Required return 10% 12% Market price $25 $40 Expected growth 7% 9% a. These two stocks must have the same expected year-end dividend. b. These two stocks must have the same expected capital gains yield. c. These two stocks should have the same price. d. These two stocks should have the same expected return.

The correct answer is (a) these two stocks must have the same expected year-end dividend

Explanation:

Solution

Given that:

The overall total return is consists of hr capital gain and  dividend yield.

For Stock A the total return needed is 10% and it;s capital yield is 7%, hence, the Dividend of A is 3%.

However for the Stock B the total return needed is 12% and the capital gain is  9%, so the dividend yield is 3%.

Therefore the second the option A is correct.

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