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What are the required rates of return on both stocks

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Reference no: EM132513583

The risk-free rate is 6% and the market risk premium (Rm - Rf) is 8% . The following information is available on stocks A and B:

                                                         Stock A                                Stock B

Beta                                            1.20                                1.00

Expected dividend next year              $1.50                             $1.08

Growth rate (g)                                 5%                                8%

Current Price (p0)                                 $15                             $12

Question a. What are the required rates of return on both stocks using the CAPM model? What are the expected rates of returns of both stocks using the dividend growth model? Would you recommend purchasing or selling the stocks? Explain

Reference no: EM132513583

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