Question
1. The HT and USRs stock returns are shown in the following table. Assume you invest 40% in HT and 60% in USR. Calculate your
1. The HT and USRs stock returns are shown in the following table. Assume you invest 40% in HT and 60% in USR. Calculate your portfolios expected return and standard deviation.
| Economy | Prob. | HT | USR |
| Recession | 0.1 | -27.00% | 6.00% |
| Below avg | 0.2 | -7.00% | -14.00% |
| Average | 0.4 | 15.00% | 3.00% |
| Above avg | 0.2 | 30.00% | 41.00% |
| Boom | 0.1 | 45.00% | 26.00% |
2. Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The companys last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
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