Question
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
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.
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