Two stocks each currently pay a dividend of $2.40 per share. It is anticipated that both firms dividends will grow annually at the rate of 3 percent. Firm A has a beta coefficient of 0.99 while the beta coefficient of firm B is 0.75.

If U.S. Treasury bills currently yield 5.5 percent and you expect the market to increase at an annual rate of 9 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: $

Why are your valuations different? The beta coefficient of -Select- is higher, which indicates the stock's return is -Select- volatile.

If stock As price were $32 and stock Bs price were $58, what would you do? Stock A is -Select- and -Select- be purchased.

Stock B is -Select- and -Select- be purchased.

You are considering two stocks. The beta of A is 1.6 . The firm offers a dividend yield during the year of 3 percent and a growth rate of 8.1 percent. The beta of B is 1.1. The firm offers a dividend yield during the year of 4.6 percent and a growth rate of 7.3 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 being riskier. c. Since A offers higher potential growth, should it be purchased? Stock A be purchased. d. Since B offers higher dividend yield, should it be purchased? Stock B be purchased. e. Which stock(s) should be purchased? should be purchased