security market line is estimated to be k=4% + (10.4% - 4%)β. You are considering two stocks. The beta of A is 1.4. The firm offers a dividend yield during the year of 4 percent and a growth rate of 8.4 percent. The beta of B is 1.7. The firm offers a dividend yield during the year of 5.9 percent and a growth rate of 7.5 percent. What is the required return for each security? Round your answers to two decimal places. Stock A: % Stock B: % Why are the required rates of return different? The difference in the required rates of return is the result of being riskier. Since A offers higher potential growth, should it be purchase
security market line is estimated to be k=4% + (10.4% - 4%)β. You are considering two stocks. The beta of A is 1.4. The firm offers a dividend yield during the year of 4 percent and a growth rate of 8.4 percent. The beta of B is 1.7. The firm offers a dividend yield during the year of 5.9 percent and a growth rate of 7.5 percent. What is the required return for each security? Round your answers to two decimal places. Stock A: % Stock B: % Why are the required rates of return different? The difference in the required rates of return is the result of being riskier. Since A offers higher potential growth, should it be purchase
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The security market line is estimated to be
k=4% + (10.4% - 4%)β.
You are considering two stocks. The beta of A is 1.4. The firm offers a dividend yield during the year of 4 percent and a growth rate of 8.4 percent. The beta of B is 1.7. The firm offers a dividend yield during the year of 5.9 percent and a growth rate of 7.5 percent.
- What is the required return for each security? Round your answers to two decimal places.
Stock A: %
Stock B: %
- Why are the required
rates of return different?
The difference in the required rates of return is the result of being riskier.
- Since A offers higher potential growth, should it be purchased?
Stock A be purchased.
- Since B offers higher dividend yield, should it be purchased?
Stock B be purchased.
- Which stock(s) should be purchased?
should be purchased.
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