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eBook Problem 11-07 The security market line is estimated to be k=5% + (11.2% - 5%). You are considering two stocks. The beta of Ais
eBook Problem 11-07 The security market line is estimated to be k=5% + (11.2% - 5%). You are considering two stocks. The beta of Ais 1.7. The firm offers a dividend yield during the year of 5 percent and a growth rate of 6.3 percent. The beta of Bis 2.1. The firm offers a dividend yield during the year of 6.3 percent and a growth rate of 5.3 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? Stock B -Select be purchased. e. Which stock(s) should be purchased? should be purchased. -Select
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