Question
Your broker suggests two stocks as good to purchase; stock GAAB and stock PUFF. The two stocks each pay a GHS 1.5 dividend that is
Your broker suggests two stocks as good to purchase; stock GAAB and stock PUFF. The two stocks each pay a GHS 1.5 dividend that is growing annually at 9 percent. Stock GAAB has a beta of 1.4 while stock PUFFs beta is 0.85. i. Which stock is more volatile and why? ii. If treasury bills yield 8 percent and you expect the market return to rise by 15.5 percent, what is your risk-adjusted required rate of return? iii. Using the dividend-growth model, what is the maximum amount you would be willing to pay for each stock? iv. Why are your valuations different?
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