Chip looking to further impress his new love asks you to help him evaluate two stocks. The two stocks each pay a $1 dividend that is growing annually at 8 percent. Stock A has a beta of 1.3; stock B's beta is 0.8.

a. Which stock is more volatile?

b. If treasury bills yield 6 percent and the market is expected to rise by 12 percent, what is the riskadjusted required rate of return?

c. Using the dividendgrowth model, what is the maximum amount someone would be willing to pay for each stock?

d. Why are the valuations different?