You are considering two stocks. Both pay 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%) β
a) What is the required return for each stock?
b) If A is selling for $10 a share, is it a good buy if you expect earnings and dividends to grow at 5 percent?
c) The earnings and dividends of B are expected to grow annually at 10 percent. Would you buy the stock for $30?
d) If the earning and dividends of A were expected to grow annually at 10 percent, would it be a good buy at $30?