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The security market line is estimated to be k=7% + (9.9% -7%) B. You are considering two stocks. The beta of A is 1.7. The
The security market line is estimated to be k=7% + (9.9% -7%) B. You are considering two stocks. The beta of A is 1.7. The firm offers a dividend yield during the year of 6 percent and a growth rate of 7 percent. The beta of B is 2.0. The firm offers a dividend yield during the year of 6.9 percent and a growth rate of 6.4 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- c. Since A offers higher potential growth, should it be purchased? Stock A-Select- be purchased. d. Since B offers higher dividend yield, should it be purchased? Stock B -Select- be purchased. e. Which stock(s) should be purchased? should be purchased. -Select- % being riskier
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