You are considering two stocks. The beta of A is 1.3. The firm offers a dividend yield during the year of 6 percent and a growth rate of 5.7 percent. The beta of B is 0.9. The firm offers a dividend yield during the year of 7.2 percent and a growth rate of 4.8 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 stock a or b being riskier.

Since A offers higher potential growth, should it be purchased?

Stock A should be or should not be purchased.

Since B offers higher dividend yield, should it be purchased?

Stock B should be or should not be purchased.

Which stock(s) should be purchased?

Stock a or b