1. Chuck Smith, CFA, and Sally Chu, CFA, are independently analyzing the value of Teflon, Inc. stock. Teflon paid a dividend of $1 last year. Smith expects the dividend to grow by 10% in each of the next three years, after which it will grow at a constant rate of 4% per year. Chu also expects a temporary growth rate of 10% followed by a constant growth rate of 4%, but he expects the supernormal growth to last for only two years. Smith estimates that the required return on Teflon stock is 9%, but Chu believes the required return is 10%. Chus valuation of Teflon stock is approximately:

Question 1 options:

	Equal to Smith's valuation
	$5 greater than Smith's valuation
	$5 less than Smiths valuation

2. When constructing unleveraged portfolios consisting of only risky assets, investors should only consider the set of portfolios that:

	are minimum variance portfolios.
	reside on the efficient frontier.
	reside on the capital market line

3. An analyst gathered the following information regarding two stocks:

Assuming a risk-free rate of 5% and the expected market return of 12%, which of the following statements is most accurate?

	Stock A	Stock B
Beta	0.7	1.1
Current market price	$20	$35
Expected dividend	$1	$1
Expected price at year end	$23	$37

Stock A is overpriced and therefore the analyst should sell it.
	Stock B is underpriced and therefore the analyst should buy it.
	Stock A is underpriced and therefore the analyst should buy it.

4.

Assume that you purchased Ford Motor Company stock at the closing price on December 31, 2004 and sold it after the dividend had been paid at the closing price on January 26, 2005. Your capital gains rate (yield) for this period is closest to:

Date	Price ($)	Dividend ($)
December 31, 2004	$14.64
January 26, 2005	$13.35	$0.10
April 28, 2005	$9.14	$0.10
July 29, 2005	$10.74	$0.10
October 28, 2005	$8.02	$0.10
December 30, 2005	$7.72

Question 4 options:

	0.70%
	0.75%
	-8.80%
	-8.15%