Question
An analyst has the following information from trading that tookplace on July 25, 2012 on two stocks: Wells Fargo (WFC) and Dil-lards (DDS): For WFC:
An analyst has the following information from trading that tookplace on July 25, 2012 on two stocks: Wells Fargo (WFC) and Dil-lards (DDS): For WFC: DIV = 0.88, YLD(%) = 2.65, PE = 11.05,CLOSE = 33.23, and for DDS: DIV = 0.20, YLD(%) = 0.32, PE =6.53, CLOSE = 62.58. Both stock prices are inclusive of the currentdividend (i.e., they are not trading ex-dividend). He has made projec-tions of dividend growth (based on earnings) of 4 percent per year forWFC and 5.5 percent per year for DDS. He assesses the riskiness ofthe two investments, and decides that he needs to have an expectedrate of return of 6 percent to invest in either of the two stocks. He willdecide to:(A) purchase WFC, but not buy DDS.(B) purchase DDS, but not buy WFC.(C) purchase both DDS and WFC.(D) buy neither WFC nor DDS
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