b) Stock A or Stock B

c) Should or Should not

d) Should or Should not

e) Stock A, Stock B, Neither Stocks, Both Stocks

Problem 11-07 The security market line is estimated to be k=5% + (12.6% - 5%)B. You are considering two stocks. The beta of A is 1.8. The firm offers a dividend yield during the year of 6 percent and a growth rate of 5.5 percent. The beta of B is 2.0. The firm offers a dividend yield during the year of 6.8 percent and a growth rate of 4.8 percent. a. What is the required return for each security? Round your answers to two decimal places. Stock A: % Stock B: % | being riskier. b. Why are the required rates of return different? The difference in the required rates of return is the result of -Select- c. Since A offers higher potential growth, should it be purchased? Stock A-Select be purchased. d. Since B offers higher dividend yield, should it be purchased? be purchased. e. Which stock(s) should be purchased? should be purchased. Stock B -Select- -Select