The security market line is estimated to be

k=4% + (9.8% - 4%).

You are considering two stocks. The beta of A is 1.4. The firm offers a dividend yield during the year of 5 percent and a growth rate of 7.4 percent. The beta of B is 1.1. The firm offers a dividend yield during the year of 6.8 percent and a growth rate of 6.7 percent.

A. What is the required return for each security? Round your answers to two decimal places.

Stock A: %

Stock B: %

B. Why are the required rates of return different?

The difference in the required rates of return is the result of -Select-stock A or stock B being riskier.

C. Since A offers higher potential growth, should it be purchased?

Stock A -Select-should or should not be purchased.

D. Since B offers higher dividend yield, should it be purchased?

Stock B -Select-should or should not be purchased.

E. Which stock(s) should be purchased?

-Select-Stock A, Stock B, Neither of stocks, or Both stocks should be purchased.