Two stocks each currently pay a dividend of $2.20 per share. It is anticipated that both firms’ dividends will grow annually at the rate of 5 percent. Firm A has a beta coefficient of 0.89 while the...

Two stocks each currently pay a dividend of $2.20 per share. It is anticipated that both firms’ dividends will grow annually at the rate of 5 percent. Firm A has a beta coefficient of 0.89 while the beta coefficient of firm B is 0.99.

1. If U.S. Treasury bills currently yield 5 percent and you expect the market to increase at an annual rate of 8.4 percent, what are the valuations of these two stocks using the dividend-growth model? Do not round intermediate calculations. Round your answers to two decimal places.

Stock A: $

Stock B: $

1. Why are your valuations different?

The beta coefficient of  is higher, which indicates the stock's return is  volatile.

1. If stock A’s price were $33 and stock B’s price were $58, what would you do?

Stock A is  and  be purchased.

Stock B is  and  be purchased.