Two stocks each currently pay a dividend of $1.00 per share. It is anticipated t

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Two stocks each currently pay a dividend of $1.00 per share. It is anticipated that both firms’ dividends will grow annually at the rate of 6 percent. Firm A has a beta coefficient of 0.8 while the beta coefficient of the firm is 1.28.
A. If the U.S. Treasury bill currently yield 3.7 percent and you expect the market to increase at an annual rate of 8.7 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your Andre to two decimal places. Stock A: $_____ Stock B: $_____
B. Why are your valuations different? The beta coefficient of (Stock A or B) is higher, which indicates the stock’s return is (Stock A or B) volatile.
C. If Stock A’s price were $42 and stock B’s price were $30, what would you do?
Stock A is (undervalued or overvalued) and (should or should not) be purchased. Stock B is (undervalued or overvalued) and (should or should not) be purchased.
Please show work to answer. Two stocks each currently pay a dividend of $1.00 per share. It is anticipated that both firms’ dividends will grow annually at the rate of 6 percent. Firm A has a beta coefficient of 0.8 while the beta coefficient of the firm is 1.28.
A. If the U.S. Treasury bill currently yield 3.7 percent and you expect the market to increase at an annual rate of 8.7 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your Andre to two decimal places. Stock A: $_____ Stock B: $_____
B. Why are your valuations different? The beta coefficient of (Stock A or B) is higher, which indicates the stock’s return is (Stock A or B) volatile.
C. If Stock A’s price were $42 and stock B’s price were $30, what would you do?
Stock A is (undervalued or overvalued) and (should or should not) be purchased. Stock B is (undervalued or overvalued) and (should or should not) be purchased.
Please show work to answer.
A. If the U.S. Treasury bill currently yield 3.7 percent and you expect the market to increase at an annual rate of 8.7 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your Andre to two decimal places. Stock A: $_____ Stock B: $_____
B. Why are your valuations different? A. If the U.S. Treasury bill currently yield 3.7 percent and you expect the market to increase at an annual rate of 8.7 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your Andre to two decimal places. Stock A: $_____ Stock B: $_____
B. Why are your valuations different? The beta coefficient of (Stock A or B) is higher, which indicates the stock’s return is (Stock A or B) volatile.
C. If Stock A’s price were $42 and stock B’s price were $30, what would you do?
Stock A is (undervalued or overvalued) and (should or should not) be purchased. Stock B is (undervalued or overvalued) and (should or should not) be purchased.
Please show work to answer.

Explanation / Answer

A.

cost of equity of A=3.7%+0.8*(8.7%-3.7%)=7.70%

cost of equity of B=3.7%+1.28*(8.7%-3.7%)=10.10%

Stock A valuation=(1*(1+6%))/(7.70%-6%)=62.35

Stock B valuation=(1*(1+6%))/(10.10%-6%)=25.85

B.

The beta coefficient of (Stock B) is higher, which indicates the stock’s return is (Stock B) volatile.

C.

Stock A is (undervalued and (should be purchased.

Stock B is ( overvalued) and (should not) be purchased.

the above is answer..

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