Tonymaxwell
May 24, 2009, 04:58 AM
Problem no.1 “Expected Returns Discrete Distribution”
The market and stock J have the following probability distributions:
Probability rm rJ
0.3 15% 20%
0.4 9 5
0.3 18% 12
(a)Calculate the expected rates of return for the market and Stock J.
(b)Calculate the standard deviations for the market and Stock J.
(c)Calculate the coefficients of variation for the market and Stock J.
Problem no.2 “Required Rate of return”
Suppose rRF = 9%, rM = 14%, and bi = 1.3.
(a)What is ri the required rate of return on Stock I?
(b)Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?
(c)Now assume rRF remains at 9% but rM (1) increases to 16% or (2) decreases to 13%. The slope of the SML does not remain constant. How would these changes affect ri?
Problem no.3 “Portfolio Beta”
Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio beta is equal to 1.12. Now suppose you have decided to sell one of the stocks in your portfolio with a beta equal to 1.0 for $7,500 and to use these proceeds to buy another stock for your portfolio. Assume the new stock’s beta is equal to 1.75. Calculate your portfolio’s new beta.
Problem no.4 “Nonconstant Growth Valuation”
A company currently pays a dividend of $2 per share, Do = $2. It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then the dividend will grow at a constant rate of 7% thereafter. The company’s stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?
Problem no.5 “Constant Growth Valuation”
You are considering an investment in the common stock of Crisp’s Cookware. The stock is expected to pay a dividend of $2 a share at the end of the year (D1 = $2.00). The stock has a beta equal to 0.9. The risk –free rate is 5.6%, and the market risk premium is 6%. The stock’s dividend is expected to grow at some constant rate g. The stock currently sells for $25 a share. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is P3?
Thank you in advance and I need any help please urgent ASAP
The market and stock J have the following probability distributions:
Probability rm rJ
0.3 15% 20%
0.4 9 5
0.3 18% 12
(a)Calculate the expected rates of return for the market and Stock J.
(b)Calculate the standard deviations for the market and Stock J.
(c)Calculate the coefficients of variation for the market and Stock J.
Problem no.2 “Required Rate of return”
Suppose rRF = 9%, rM = 14%, and bi = 1.3.
(a)What is ri the required rate of return on Stock I?
(b)Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?
(c)Now assume rRF remains at 9% but rM (1) increases to 16% or (2) decreases to 13%. The slope of the SML does not remain constant. How would these changes affect ri?
Problem no.3 “Portfolio Beta”
Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio beta is equal to 1.12. Now suppose you have decided to sell one of the stocks in your portfolio with a beta equal to 1.0 for $7,500 and to use these proceeds to buy another stock for your portfolio. Assume the new stock’s beta is equal to 1.75. Calculate your portfolio’s new beta.
Problem no.4 “Nonconstant Growth Valuation”
A company currently pays a dividend of $2 per share, Do = $2. It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then the dividend will grow at a constant rate of 7% thereafter. The company’s stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?
Problem no.5 “Constant Growth Valuation”
You are considering an investment in the common stock of Crisp’s Cookware. The stock is expected to pay a dividend of $2 a share at the end of the year (D1 = $2.00). The stock has a beta equal to 0.9. The risk –free rate is 5.6%, and the market risk premium is 6%. The stock’s dividend is expected to grow at some constant rate g. The stock currently sells for $25 a share. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is P3?
Thank you in advance and I need any help please urgent ASAP