Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started