You are considering two stocks. Both pay a dividend of $1, but the beta coefficient of A
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You are considering two stocks. Both pay a dividend of $1, but the beta coefficient of A is 1.5 while the beta coefficient of B is 0.7. Your required return is k 5 8% 1 115% 2 8%2b.
a) What is the required return for each stock?
b) If A is selling for $10 a share, is it a good buy if you expect earnings and dividends to grow at 5 percent?
c) The earnings and dividends of B are expected to grow annually at 10 percent. Would you buy the stock for $30?
d) If the earnings and dividends of A were expected to grow annually at 10 percent, would it be a good buy at $30?
Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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a k A 08 15 0815 185 185 k B 08 15 087 129 129 b Valuatio...View the full answer
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