You've collected the following information for two stocks:

	Stock 1	Stock 2
Beta	0.5	1.6
Dividend yield	7%	1%
Growth rate	4%	8%

The risk-free rate is 2% and the expected return on the market portfolio is 9%.

Part 5

What is the expected return for stock 1 based on the dividend growth model?

Part 6

What is the expected return for stock 2 based on the dividend growth model?

Part 7

Which stock should you buy?

Stock 2, because its expected return is greater than stock 1's

Stock 2, because its expected return is greater than its required return

Stock 1, because its expected return is is greater than stock 2's

Neither stock

Not enough information provided

Both stocks

Stock 1, because its expected return is greater than its required return