Author Question: Stock A has a beta of 0.8 and Stock Bs beta is 1.2. The market risk premium is 8%, and the risk-free ... (Read 104 times)

tyratatyanna · **on:** Aug 7, 2023

Question 1

Sorenson Corp.’s expected year-end dividend is D₁= $1.90, its required return is r_s= 13.5%, its dividend yield is 9%, and its growth rate is expected to be constant in the future. What is Sorenson’s expected stock price in 8 years; that is, what is P₈?

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$21.36

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$24.95

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$28.50

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$30.02

Question 2

Stock A has a beta of 0.8 and Stock B’s beta is 1.2. The market risk premium is 8%, and the risk-free rate is 5.5%. Both stocks have a constant dividend growth rate of 9%. If the market is in equilibrium, which of the following statements is correct?

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Stock A must have a lower stock price than Stock B.

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Stock B could have the lower expected return.

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Stock B must have the lower required return.

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Stock A must have a lower dividend yield than Stock B.

khudija · **Reply #1 on:** Aug 7, 2023

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