Answer :
In this scenario, we are comparing two stocks, X and Y, based on their price, expected dividend yield, and required return. Given the efficient market hypothesis, where stock prices reflect all available information, we can draw conclusions about the characteristics of these stocks.
1. **Price**: Both stocks X and Y are priced at $25.
2. **Expected dividend yield**: Stock X has an expected dividend yield of 5%, while Stock Y has an expected dividend yield of 3%.
3. **Required return**: Stock X has a required return of 12%, whereas Stock Y has a required return of 10%.
Now, let's analyze the statements:
a. One year from now, Stock X should have the higher price.
- Since both stocks are currently priced at $25 and the market is efficient, the price change would depend on future information not provided in the data. Therefore, this statement cannot be conclusively determined.
b. Stock Y has a lower expected growth rate than Stock X.
- The expected growth rate is not explicitly given in the data provided. It cannot be determined solely based on the given information.
c. Stock Y has the higher expected capital gains yield.
- Capital gains yield is related to the change in stock price. Given the required return is higher for Stock X, it might indicate a higher expected capital gains yield for Stock X compared to Stock Y.
d. Stock Y pays a higher dividend per share than Stock X.
- Since Stock X has a higher expected dividend yield of 5% compared to Stock Y's 3%, Stock X actually pays a higher dividend per share than Stock Y.
e. Stock X pays a higher dividend per share than Stock Y.
- This statement is correct based on the data provided. Stock X pays a higher dividend per share due to its higher expected dividend yield of 5%.
In conclusion, statement e, "Stock X pays a higher dividend per share than Stock Y," is the correct statement based on the data provided.
