The security market line is estimated to be k=4% + (12.7% - 4%).

You are considering two stocks. The beta of A is 1.3. The firm offers a dividend yield during the year of 3 percent and a growth rate of 7.6 percent. The beta of B is 1.5. The firm offers a dividend yield during the year of 4 percent and a growth rate of 6.9 percent.

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

Stock A: %

Stock B: %

Why are the required rates of return different? The difference in the required rates of return is the result of -Select- being riskier.

Since A offers higher potential growth, should it be purchased? Stock A -Select- be purchased. S

ince B offers higher dividend yield, should it be purchased? Stock B -Select- be purchased.

Which stock(s) should be purchased? -Select- should be purchased.