Two Stocks Each Pay a $1 Dividend That Is Growing

question 22

Essay

Two stocks each pay a $1 dividend that is growing annually at 4 percent. Stock A's beta = 1.3; stock B's beta = 0.8.
a. Which stock is more volatile?
b. If Treasury bills yield 2 percent and you expect
the market to rise by 8 percent, what is your
risk-adjusted required return for each stock?
c. Using the dividend-growth model, what is the
maximum price you would be willing to pay for each
stock?
d. Why are their valuations different?
​

---

Definitions:

Smoke Inhalation

The act of breathing in combustion products during exposure to fire, which can lead to respiratory distress and other health issues.

Pulse Oximetry

A non-invasive method to monitor the oxygen saturation level of the blood using a device usually clipped to a finger.

Arterial Blood Gases

Tests that measure the levels of oxygen and carbon dioxide in the arterial blood, indicating the efficiency of the lungs in gas exchange.

Inhaled Steroids

Medications delivered directly to the lungs through inhalation to reduce inflammation and treat respiratory conditions like asthma.