1) Consider a firm that is expected to generate earnings of $3 per share next year. If the mean ratio of share price to expected earnings of competitors in the same industry is 15, then the valuation of the firm’s shares is?
2) Two constant growth stocks have the same price, and have the same required rate of return. Which of the following statements is CORRECT?
a. The two stocks must have the same dividend per share.
b. If one stock has a higher dividend yield, it must also have a lower dividend growth rate.
c. If one stock has a higher dividend yield, it must also have a higher dividend growth rate.
d. The two stocks must have the same dividend growth rate.
e. The two stocks must have the same dividend yield.