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2. The risk-free rate is 5 percent. 5 points Stock A has a beta 1.2 and Stock B has a beta 1.4. Stock A has

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2. The risk-free rate is 5 percent. 5 points Stock A has a beta 1.2 and Stock B has a beta 1.4. Stock A has a required return of 11 percent. What is Stock Bs required return? * O a) 12.0% O b) 13.4% O Oc) 14.4% O O d) 15.4% 7. Suppose you held a diversified 5 points portfolio consisting of 10 different common stocks, investing $500 in each stock. The portfolio's beta is 1.9. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 0.8 for $500 and use the proceeds to buy another stock with a beta of 1.25. What would your portfolio's new beta be? * O a) 1.074 O b) 2.025 O c) 3.865 O d) 4.2 12. London's stock has a required 5 points return of 12%, and the stock sells for $40 per share. The firm just paid a dividend of $1, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1(1.30)4 = $2.8561. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after t = 4, i.e., what is X?* O a) 5.17% O 5.44% O c) 5.72% O d) 6.34% 16. Jora Corp. is expected to pay 5 points a $2 per share dividend at the end of the year (that is, D1 = $2). The dividend is expected to grow at a constant rate of 8% a year. The required rate of return on the stock, rs, is 10%. What is the stock's current value per share? * O a) $10 O b) $100 Oc) $200 O O d) None of the above 15. A stock that currently trades 5 points for $40 per share is expected to pay a year-end dividend of $2 per share. The dividend is expected to grow at a constant rate over time. The stock has a beta of 1.2, the risk-free rate is 5 percent, and the market risk premium is 5 percent. What is the stock's expected price seven years from today? * O O O O a) $ 56.26 b) $ 58.01 c) $83.05 d) $60.15

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