What is the required return for each stock

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Question - You are considering two stocks. Both have just paid 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 = 8 % + (15 % - 8%)*beta.

a. What is the required return for each stock?

b. If A selling for $5 a share, is it a good buy if you expect earnings and dividends to grow at 5 percent? (Why, show your reasoning, yes or no is not acceptable)

c. The earnings and dividend of B are expected to grow annually at 10%. Would you buy the stock for $40? (Show your reasoning, yes or no is not acceptable)

d. If the earnings and dividends of A were expected to grow annually at 10 %, would it be a good buy at $10? (Show your reasoning, yes or no is not acceptable)

Reference no: EM133022404

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