Two stocks each currently pay a dividend of $1 75 per share It is anticipated that both firms dividends will grow annually at the rate of 8 percent Firm A has a beta coefficient of 0 88 while the beta coefficient of firm B is 1 35 a If U S Treasury bills currently yield 6 4 percent and you expect t...

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Two stocks each currently pay a dividend of $1.75 per share. It is anticipated that both firms

Question:

Two each currently pay a of $1.75 per share. It is anticipated that both firms’ dividends will grow annually at the rate of 8 percent. Firm A has a of 0.88 while the of firm B is 1.35.
a. If U.S. Treasury bills currently yield 6.4 percent and you expect the market to increase at an annual rate of 12.1 percent, what are the valuations of these two using the dividend-growth model?
b. Why are your valuations different?
c. If stock A’s price were $51 and stock B’s price were $42, what would you do?
Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Beta Coefficient
Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...