Problem
Consider two stocks, A and B. Stock A is currently traded at a price of $30, it is expected to pay a dividend of $1 next year and to sell then at a price of $33. Stock B is currently traded at $15, and it is expected to pay a dividend of $0.5 next year and to sell then at a price of $16. Stock A has a beta of 1.2 and stock B has a beta of 1.5. The expected market rate of return is 9% and the risk-free rate is 5%. Which stock is a better buy? Must show detailed computations to support your conclusion.