Two stocks each currently pay a dividend of $1.50 per share. It is anticipated that both firms dividends will grow annually at the rate of 5 percent. Firm A has a beta coefficient of 1.03 while the beta coefficient of firm B is 1.46. a. If U.S. Treasury bills currently yield 5.9 percent and you expect the market to increase at an annual rate of 8 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your answers to two decimal places. Stock A: $ Stock B: $ Why are your valuations different? The beta coefficient of -Select- is higher, which indicates the stock's return is-Select-volatile. c. If stock A's price were $32 and stock B's price were $45, what would you do? Stock A is-Select- ✓and -Select- ✓ be purchased. Stock B is-Select- and-Select- be purchased.

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
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Two stocks each currently pay a dividend of $1.50 per share. It is anticipated that both firms dividends will grow annually at the rate of 5 percent. Firm A has a beta coefficient of 1.03 while the beta coefficient of firm B is 1.46.
a. If U.S. Treasury bills currently yield 5.9 percent and you expect the market to increase at an annual rate of 8 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your
answers to two decimal places.
Stock A: $
Stock B: $
b. Why are your valuations different?
The beta coefficient of -Select- is higher, which indicates the stock's return is -Select- volatile.
c. If stock A's price were $32 and stock B's price were $45, what would you do?
Stock A is-Select-
✓and -Select- ✓be purchased.
Stock B is -Select-
vand -Select- ✓be purchased.
Transcribed Image Text:Two stocks each currently pay a dividend of $1.50 per share. It is anticipated that both firms dividends will grow annually at the rate of 5 percent. Firm A has a beta coefficient of 1.03 while the beta coefficient of firm B is 1.46. a. If U.S. Treasury bills currently yield 5.9 percent and you expect the market to increase at an annual rate of 8 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your answers to two decimal places. Stock A: $ Stock B: $ b. Why are your valuations different? The beta coefficient of -Select- is higher, which indicates the stock's return is -Select- volatile. c. If stock A's price were $32 and stock B's price were $45, what would you do? Stock A is-Select- ✓and -Select- ✓be purchased. Stock B is -Select- vand -Select- ✓be purchased.
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