Problem: Stock X has a required return of 12 percent, a dividend yield of 5 percent, and its dividend will grow at a constant rate forever. Stock Y has a required return of 10 percent, a dividend yield of 3 percent, and its dividend will grow at a constant rate forever. Both stocks currently sell for $25 per share. Which of the following statements is most correct?
a. Stock X pays a higher dividend per share than stock Y.
b. Stock X has a lower expected growth rate than stock Y.
c. One year from now, the two stocks are expected to trade at the same price.
d. Statements a and b are correct
e. Statements a and c are correct.