Two stocks each currently pay a dividend of $2.20 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 0.89 while the beta coefficient of firm B is 0.99.   If U.S. Treasury bills currently yield 5 percent and you expect the market to increase at an annual rate of 8.4 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  is higher, which indicates the stock's return is  volatile.   If stock A’s price were $33 and stock B’s price were $58, what would you do?   Stock A is  and  be purchased. Stock B is  and  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 $2.20 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 0.89 while the beta coefficient of firm B is 0.99.

 

    1. If U.S. Treasury bills currently yield 5 percent and you expect the market to increase at an annual rate of 8.4 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: $  

 

    1. Why are your valuations different?

 

The beta coefficient of  is higher, which indicates the stock's return is  volatile.

 

    1. If stock A’s price were $33 and stock B’s price were $58, what would you do?

 

Stock A is  and  be purchased.

Stock B is  and  be purchased.

 

 

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