Two stocks each currently pay a dividend of $1.10 per share. It is anticipated that...
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Accounting
Two stocks each currently pay a dividend of $ per share. It is anticipated that both firms dividends will grow annually at the rate of percent. Firm A has a beta coefficient
of while the beta coefficient of firm is
a If US Treasury bills currently yield percent and you expect the market to increase at an annual rate of percent, what are the valuations of these two stocks
using the dividendgrowth 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
is higher, which indicates the stock's return is
volatile.
c If stock As price were $ and stock Bs price were $ what would you do
Stock A is and be purchased.
Stock B is and be purchased.
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