20. A company's common share 5 points has a price of $300, and the company will pay a dividend (D1) of dividend of $9. If the dividend is expected to grow at a constant rate, what would the growth rate be if the required rate of return is 15%? * O a) 10% O b) 12% O c) 15% O d) None of the above 5 points 19. RMC issued perpetual preferred stock with a 20% annual dividend. The stock currently yields 4%, and its par value is $100. Suppose interest rates rise and pull the preferred stock's yield up to 10%. How much would its market value change? * O a) $200 O b) $500 O c) -$200 O d) None of the above 18. A company has perpetual 5 points preferred stock outstanding that pays a dividend of $10 at the end of each year and the required rate of return is 14%. What is the price of the preferred stock? * O a) 71.42% O b) $8.71 O c) $71.42 O d) None of the above 17. Company X's stock currently 5 points sells for $15 a share. It just paid a dividend of $2 a share (that is, DO = $2). The dividend is expected to grow at a constant rate of 4% a year. What stock price is expected 1 year from now? * O a) 17.8% b) 15.6% O c)1 O d) $15.6 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 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% 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 6. Assume that the required rate 5 points of return on a stock is 15.6% and the expected return on the market is 14%. What is the risk- free rate if the stock's has a beta of 1.2? * O a) 4 O b) 5 O c)6 O d) None of the above 5 points 4. Stock A has an expected return of 12 percent, a beta of 1.2, and a standard deviation of 20 percent. Stock B has an expected return of 10 percent, a beta of 1.2, and a standard deviation of 15 percent. Portfolio P has $900,000 invested in Stock A and $300,000 invested in Stock B. The correlation between Stock A's returns and Stock B's returns is zero (that is, r = 0). Which of the following statements is most correct? * a) Portfolio P's expected return is 11.5 percent. b) Portfolio P's standard deviation is 18.75 percent. O c) Portfolio P's beta is less than 1.2. O d) Statements a and b are correct. 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%