Two stocks each pay a $1 dividend that is growing annually at 4 percent. Stock A's beta = 1.3; stock B's beta = 0.8.
a. Which stock is more volatile?
b. If Treasury bills yield 2 percent and you expect
the market to rise by 8 percent, what is your
risk-adjusted required return for each stock?
c. Using the dividend-growth model, what is the
maximum price you would be willing to pay for each
stock?
d. Why are their valuations different?

Question

Two stocks each pay a $1 dividend that is growing annually at 4 percent. Stock A's beta = 1.3; stock B's beta = 0.8.
a. Which stock is more volatile?
b. If Treasury bills yield 2 percent and you expect
the market to rise by 8 percent, what is your
risk-adjusted required return for each stock?
c. Using the dividend-growth model, what is the
maximum price you would be willing to pay for each
stock?
d. Why are their valuations different?
​

Quizplus · Accepted Answer

The Answer of Two stocks each pay a $1 dividend that is growing annually at 4 percent. Stock A's beta = 1.3; stock B's beta = 0.8.
a. Which stock is more volatile?
b. If Treasury bills yield 2 percent and you expect
the market to rise by 8 percent, what is your
risk-adjusted required return for each stock?
c. Using the dividend-growth model, what is the
maximum price you would be willing to pay for each
stock?
d. Why are their valuations different?
​

Two Stocks Each Pay a $1 Dividend That Is Growing