Two stocks each currently pay a dividend of $2.30 per share. It is anticipated that both firms dividends will grow annually at the rate of 5 percent. Firm A has a beta coefficient of 0.8 while the beta coefficient of firm B is 0.36.

Stock A: $

Stock B: $

The beta coefficient of -Select-stock Astock BItem 3 is higher, which indicates the stock's return is -Select-lessmoreItem 4 volatile.

Stock A is -Select-undervaluedovervaluedItem 5 and -Select-shouldshould notItem 6 be purchased.

Stock B is -Select-undervaluedovervaluedItem 7 and -Select-shouldshould notItem 8 be purchased.

1. If U.S. Treasury bills currently yield 5.9 percent and you expect the market to increase at an annual rate of 8 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.
2. Why are your valuations different?
3. If stock As price were $38 and stock Bs price were $38, what would you do?