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Assume the risk-free rate of return is 3% and the market rate of return is 12%. Two companies, ABC and XYZ have the following data.
- Assume the risk-free rate of return is 3% and the market rate of return is 12%. Two companies, ABC and XYZ have the following data.
ABC | XYZ | ||
Beta | 1.2 | 1.6 | |
Current share price (NYSE) |
| $35.25 | $17.50 |
Dividend just paid, per share | $2.00 | $2.00 | |
Growth rates | Year 1 | 14% | 6% |
Year 2 | 12% | 6% | |
Year 3 | 11% | 6% | |
Year 4 | 10% | 6% | |
Year 5 | 8% | 6% | |
Year 6 + | 6% | 6% |
Make the necessary analyses and determine if you would include or not include these companies in your investment portfolio.
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