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In: Accounting

Ahmed has to take a decision to invest in either STC Stock or Zain Stock. For...

Ahmed has to take a decision to invest in either STC Stock or Zain Stock.
For the STC Stock, The dividend distributed this year is 2 SR and it will grow at a constant rate (5%) and will continue for an infinite period.
For Zain Stock, the dividend always stays the same, 3 SR for every year.
The relative risk with the market for each stock (Beta) is given in the following table:

Beta

STC Stock

0.75

Zain Stock

1.25

The market price for STC stock is 20 SR and for Zain stock is 26 SR.
As an investment analyst, which stock can you advice Ahmed to buy.
Note: The risk-free rate is 10 % and the market return is 14 %.

Solutions

Expert Solution

ekkarill92 answered 7 months ago
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