Tarek and Sam, who are both age 26, got married last month. Now that they are married and building a household together, they are beginning to think more seriously about investments and retirement planning. Tarek's financial risk tolerance is on the high end of the moderate range. Samantha, on the other hand, has a relatively low level of financial risk tolerance. When faced with a saving or investment decision, she would prefer to stick with a saving or investment decision, she would prefer to stick with a sure thing rather than take an unnecessary risk. She knows, however, that to reach their joint financial goals that they, as a couple, will need to coordinate investment decisions and be willing to take more risk. They decided that they would try to obtain a long-term average rate of return of 8%. a. (8 points) Tarek and Samantha recently opened a joint online brokerage account. Tarek has identified four stocks that he's interested in buying. Information about the four stocks is shown here. Use this information to determine which of the stocks is a bargain according to the discounted dividend valuation model. Dividend Dividend Growth Rate Current Price Stock A $0.50 4.50% $19.50 Stock B $0.95 2.00% $15.00 Stock C $2.45 3.30% $45.00 Stock D $3.60 1.50% $73.25 b. (2 points) Samantha knows that she wants to reduce the amount of unsystematic risk in investments. What type of investment would offer her immediate diversification as a way to reduce this risk? Explain. Tarek and Sam, who are both age 26, got married last month. Now that they are married and building a household together, they are beginning to think more seriously about investments and retirement planning. Tarek's financial risk tolerance is on the high end of the moderate range. Samantha, on the other hand, has a relatively low level of financial risk tolerance. When faced with a saving or investment decision, she would prefer to stick with a saving or investment decision, she would prefer to stick with a sure thing rather than take an unnecessary risk. She knows, however, that to reach their joint financial goals that they, as a couple, will need to coordinate investment decisions and be willing to take more risk. They decided that they would try to obtain a long-term average rate of return of 8%. a. (8 points) Tarek and Samantha recently opened a joint online brokerage account. Tarek has identified four stocks that he's interested in buying. Information about the four stocks is shown here. Use this information to determine which of the stocks is a bargain according to the discounted dividend valuation model. Dividend Dividend Growth Rate Current Price Stock A $0.50 4.50% $19.50 Stock B $0.95 2.00% $15.00 Stock C $2.45 3.30% $45.00 Stock D $3.60 1.50% $73.25 b. (2 points) Samantha knows that she wants to reduce the amount of unsystematic risk in investments. What type of investment would offer her immediate diversification as a way to reduce this risk? Explain
