Expected rate of return of both stocks using dividend growth

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Reference no: EM13810399

The risk-free rate is 6% and the market risk premium (Rm - Rf) is 8%.

Stock A Stock B

Beta $1.20 $1.00

Expected dividend next year $1.50 $1.08

Growth rate 5% 8%

Current price $15 $12

1. What are the required rates of returns on both stocks using the CAPM model?

2. What are the expected rates of return of both stocks using the dividend growth model/

3. Which stock would you recommend to purchase or sell? Why?

Reference no: EM13810399

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