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eBook Problem 11-07 The security market line is estimated to be k=8% + (9.8% -...

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Finance

eBook Problem 11-07 The security market line is estimated to be k=8% + (9.8% - 8%). You are considering two stocks. The beta of A is 1.2. The firm offers a dividend yield during the year of 4 percent and a growth rate of 6.7 percent. The beta of B is 0.9. The firm offers a dividend yield during the year of 5.3 percent and a growth rate of 6.1 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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