1. Following are recent returns on Google and on Coca-Cola. Year Google Coca-Cola 2017 121.67% 29.27% 2016 -16.31% 26.35% 2015 6.46% 2.24% 2014 -15.83% 13.93% 2013 178.56% 21.94% Required: (20) a) Compute the historical return and standard deviation for each company b) Compute Coefficient of variation for both stocks To solve (c-e), assume a portfolio of $60,000 invested in these two stocks: with $24,000 invested in Google and $36,000 invested in Coca-Cola. c) Compute the portfolio return earned in each year d) Compute the average portfolio return earned during the years (2013-2017) e) Compute the portfolio standard deviation 2. Use the information in the following table to answer the questions below State of the Economy Chances of occurrence Boom -30 Growth .40 Stagnant 20 Recession .10 Total 1.0 Stock X 5% 7% 5% 10% Stock Z 24% 5% 6% 8% (20) Required: a) What is the expected return of each asset? b) What is the risk of each asset? c) What is the portfolio return if you invest 30% in Stock Z and 70% in Stock X? d) What is the standard deviation of the portfolio in partc if the correlation coefficient is -4? 3. To expand its business, the Computer Source Ltd. would like to issue bonds with par value of $1,000, coupon rate of 10%, and maturity of 10 years from now. (10) Required: a) What is the value of the bond if the required rate of return is i)8%, ii) 10%, and iii) 12%? b) Name each of these bonds based on values calculated in part a 4. Pedrollo Pumps has issued a bond which has a $1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in twenty years and currently sells for $1,250. Required: (5) a) Using the approximation formula, calculate the yield to maturity (YTM) b) Calculate the current yield of Pedrollo bonds. 5. The Square Hospital has been very successful in the past four years. Over these years, it paid common stock dividend of $4 in the first year, $4.20 in the second year, $4.41 in the third year, and its most recent dividend was $4.63. The company wishes to continue this dividend growth indefinitely. What is the value of the company's stock if the required rate of return is 12 percent? (5) 6. The Medical Equipment Company paid $2.25 common stock dividend last year. The company expects a dividend growth of 10% in year 1 and 2, no growth in dividends in year 3 as the company has a large capital expenditure project to take and hence need to retain profit in that year. Then a 15% growth is expected in year 4. The company's policy is to allow its dividend to grow indefinitely at 5 percent per year starting year 5. What is the value of the stock if the shareholders required rate of return is 8 percent
