9 questions. All answers are provided. Please show work to get the answers

1.

You are analyzing a stock with a beta of 2.9. The risk-free rate of interest is 3 percent and the market risk premium is 8 percent. What is the stock's equilibrium required rate of return?

If the expected return based on market price is 17.5%, is the stock over, under, or correctly valued?

What is the expected return on the market?

Answer 26.2%Overvalued11%

2.

What is the beta of the following portfolio?

Stock Beta Investment

A 1.2 $ 20,000

B 0.8 100,000

C 2.3 80,000

Answer 1.44

3.

Calculate the standard deviation of a portfolio consisting of 25 percent stock A and 75 percent stock B.

Stock SD Corr

A 30% 0.24

B 50%

Answer 39.97%

4.

Calculate the standard deviation of a portfolio consisting of 25 percent stock A and 75 percent stock B.

Stock Var Cov

A 0.09 0.036

B 0.25

Answer 0.3997

5.

I bought a common stock whose current dividend is $0.15 per share. Over the next two years, earnings and dividends are expected to grow at an annual rate of 14 percent per year, and then slow to a rate of 8 percent thereafter. What is the value per share of the firm's common stock if I require a 10 percent rate of return?

Answer $9.02

6.

Evaluate mutually exclusive projects A and B, each costing $30,000 and with a required return of 10%.

Project NCF Life

A $10,500 4 years

B $6500 8 years

Answer

Project AProject B

NPV$3283.59$4677.02

EAA$1035.88$876.68

Accept project A and rejectproject B since A has a higher equivalent annual annuity than B.

7.

Given the following annual returns, calculate:

1) the arithmetic average

2) the geometric average

YearReturn (%)

1 12

2 20

3-8

1) 8% 2) 7.33%

8.

DML, Incorporated is expected to pay an annual dividend of $1.50 per share in the coming year, and the stock is expected to trade at $98.60 per share at the end of the year. If investments of equivalent risk have an expected return of 14%, what is the most one would pay today for the firm's common stock?

Answer $87.81

9.

Given the information from #8, what dividend yield and what capital gain yield would you expect if you paid $87.81 for the stock today?

Answer 1.71% and 12.29%