Two stocks each currently pay a dividend of $$1\mathrm{.}10$ per share. It is anticipated that both firms dividends will grow annually at the rate of $4$ percent. Firm A has a beta coefficient

of $0\mathrm{.}83$ while the beta coefficient of firm $B$ is $1.$

a$.$ If U$.$S$.$ Treasury bills currently yield $3\mathrm{.}7$ percent and you expect the market to increase at an annual rate of $8\mathrm{.}5$ percent, what are the valuations of these two stocks

using the dividend$-$growth model? Do not round intermediate calculations. Round your answers to two decimal places.

Stock A: $

Stock B: $

b$.$ Why are your valuations different?

The beta coefficient of

is higher, which indicates the stock's return is

volatile.

c$.$ If stock A$\text{'}$s price were $$57$ and stock B$\text{'}$s price were $$59,$ what would you do$?$

Stock A is $|,|$ and be purchased.

Stock B is and be purchased.