Solution-What is the required return for security

What is the required return for security

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The security market line is estimated to be

k=5% + (11.5% - 5%)β.

You are considering two stocks. The beta of A is 1.4. The firm offers a dividend yield during the year of 4 percent and a growth rate of 8 percent. The beta of B is 1.2. The firm offers a dividend yield during the year of 5.6 percent and a growth rate of 7.5 percent.

What is the required return for each security? Round your answers to two decimal places.
Why are the required rates of return different?
Since A offers higher potential growth, should it be purchased?
Since B offers higher dividend yield, should it be purchased?
Which stock(s) should be purchased?

Reference no: EM133115111

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What is the required return for security

Reference no: EM133115111

Reference no: EM133115111

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