Question 4 Miss Chen wants to invest in stock. She can choose between the following, both of which are currently selling at $78: Stock Zeta: Zeta Corporation is experiencing a period of rapid growth. Dividends per share on its common stock are expected to grow at a rate of 11% per year during the next 3 years, then at 8% per year for Years 4 and 5, and at a constant rate of 4% per year thereafter. Zeta's last dividend per share (Do) was $7.0. Zeta common stock has a beta of 1.25. 2 Stock Gama: Gama Corporation is also experiencing a period of rapid growth. Dividends per share on its common stock are expected to grow at a rate of 12% per year during the next 2 years, then at 8% per year for Years 3 and 4, and at a constant rate of 5% per year thereafter. Gama's last dividend per share (Do) was $7.0. Gama common stock has a beta of 1.50. The risk-free rate (r) is 5% and the market risk premium (E(M)-r) is 8%. The required rate of return on common stock is determined by the Security Market Line. Decide which stock Miss Chen should choose. Explain the rationale behind the decision. (20 marks)