Here is information on Stock A and B:
Which stock is more sensitive to changes in risk premiums and growth expectations?
Also, would you consider either a true growth stock?
Stock A: g=ROE*Retention Rate = 0.2*0.7=0.14
<br>Then Po = D1 / (k-g) = 1/(0.2-0.14) = $ 16.67
<br>Stock B: g=ROE*Retention Rate = 0.2*0.3=0.06
<br>Then Po = D1 / (k-g) = 2.33/(0.2-0.06) = $ 16.64
<br>Their price are almost the same, however, we notice the major difference between the two stocks are their dividends and growth rate (which results from different retention rate)