1.Which stock does the market expect to be riskier? Why?

a.Divs:$2, Beta: 1.3,Price $30

b.Divs:$2, Beta: 1.3,Price $35

2.Which stock has the higher price?Show your work.

[Use the constant growth model P = D / (r-g)]

Market return = 8%

T-bill rate= 4%

Stock AStock B

Beta1.051.10

EPS Growth6.5%7.0%

Current EPS$1/share$1/share

Payout Ratio45 %40 %