Question

who Two stocks each currently pay a dividend of $2.50 per share. It is anticipated that both firms dividends wil grow away at the rate of a percent. fum Ahas be e n the beta coefficient of fum Bis 1.13 af US Treasury bills currently vield 2 percent and you expect the market to incre at an annual of 8.3 percent, what are the valuations of these two stosuing the dividend-growth model Do not round intermediate calculations. Round your answers to two decim Stock AL electrolat b. Ww are your unions different? The beta docent of S h igher, which indicates the stock's retum in c. If stock As price were $32 and stock B's price were 149, what would you do? Stock As and be purchased Stock B a nd be purchased

Answer 1

Price=Past Dividend*(1+g)/(risk free rate+beta*(market return-risk free rate)-growth rate)

1.
=2.5*1.03/(2%+0.81*(8.3%-2%)-3%)=62.7589568608335

2.
=2.5*1.03/(2%+1.13*(8.3%-2%)-3%)=42.0820395489459

3.
Firm B

4.
More

5.
Undervalued

6.
Should

7.
Overvalued

8.
Should not