Assignment:
You are offered two stocks. The beta of A is 1.4 while the beta of B is 0.8. The growth rates of earnings and dividends are 10 percent and 5 percent, respectively. The dividend yields are 5 percent and 7 percent, respectively.
a) Since A offers higher potential growth, should it be purchased?
b) Since B offers a higher dividend yield, should it be purchased?
c) If the risk-free rate of return were 7 percent and the return on the market is expected to be 14 percent, which of these stocks should be bought?