a) Firm A has a stock price of $45 per share, an expected dividend for next year of $2 per share, an expected constant growth rate of 12% per year, and a beta of 1.2 on its stock. Firm B has a stock price of $45 per share, an expected dividend for next year of $3 per share, a retention rate of 65%, a historical rate of return on investment of 20%, and a beta of 1.5 on its stock. If the riskless rate is 5% and the expected return on the market portfolio is 15%, show whether these stocks are underpriced or overpriced. What is the assumption behind your calculation? (30%) b) Information about the following mutual funds were presented to prospective investors: Expected return 20% 12% i. ii. Fund name Ceteris Paribus Beta 1.8 1.0 Find the beta and expected return on the portfolio that puts 60% in Ceteris, 20% on Paribus and 20% in risk-free bonds. To achieve a rate of return of 25% by investing in Ceteris and Paribus only, what proportion of the money should be allocated to each fund? c) Discuss the similarities and differences between the CAPM and the APT. (20%) (50%) a) Firm A has a stock price of $45 per share, an expected dividend for next year of $2 per share, an expected constant growth rate of 12% per year, and a beta of 1.2 on its stock. Firm B has a stock price of $45 per share, an expected dividend for next year of $3 per share, a retention rate of 65%, a historical rate of return on investment of 20%, and a beta of 1.5 on its stock. If the riskless rate is 5% and the expected return on the market portfolio is 15%, show whether these stocks are underpriced or overpriced. What is the assumption behind your calculation? (30%) b) Information about the following mutual funds were presented to prospective investors: Expected return 20% 12% i. ii. Fund name Ceteris Paribus Beta 1.8 1.0 Find the beta and expected return on the portfolio that puts 60% in Ceteris, 20% on Paribus and 20% in risk-free bonds. To achieve a rate of return of 25% by investing in Ceteris and Paribus only, what proportion of the money should be allocated to each fund? c) Discuss the similarities and differences between the CAPM and the APT. (20%) (50%) a) Firm A has a stock price of $45 per share, an expected dividend for next year of $2 per share, an expected constant growth rate of 12% per year, and a beta of 1.2 on its stock. Firm B has a stock price of $45 per share, an expected dividend for next year of $3 per share, a retention rate of 65%, a historical rate of return on investment of 20%, and a beta of 1.5 on its stock. If the riskless rate is 5% and the expected return on the market portfolio is 15%, show whether these stocks are underpriced or overpriced. What is the assumption behind your calculation? (30%) b) Information about the following mutual funds were presented to prospective investors: Expected return 20% 12% i. ii. Fund name Ceteris Paribus Beta 1.8 1.0 Find the beta and expected return on the portfolio that puts 60% in Ceteris, 20% on Paribus and 20% in risk-free bonds. To achieve a rate of return of 25% by investing in Ceteris and Paribus only, what proportion of the money should be allocated to each fund? c) Discuss the similarities and differences between the CAPM and the APT. (20%) (50%) a) Firm A has a stock price of $45 per share, an expected dividend for next year of $2 per share, an expected constant growth rate of 12% per year, and a beta of 1.2 on its stock. Firm B has a stock price of $45 per share, an expected dividend for next year of $3 per share, a retention rate of 65%, a historical rate of return on investment of 20%, and a beta of 1.5 on its stock. If the riskless rate is 5% and the expected return on the market portfolio is 15%, show whether these stocks are underpriced or overpriced. What is the assumption behind your calculation? (30%) b) Information about the following mutual funds were presented to prospective investors: Expected return 20% 12% i. ii. Fund name Ceteris Paribus Beta 1.8 1.0 Find the beta and expected return on the portfolio that puts 60% in Ceteris, 20% on Paribus and 20% in risk-free bonds. To achieve a rate of return of 25% by investing in Ceteris and Paribus only, what proportion of the money should be allocated to each fund? c) Discuss the similarities and differences between the CAPM and the APT. (20%) (50%) a) Firm A has a stock price of $45 per share, an expected dividend for next year of $2 per share, an expected constant growth rate of 12% per year, and a beta of 1.2 on its stock. Firm B has a stock price of $45 per share, an expected dividend for next year of $3 per share, a retention rate of 65%, a historical rate of return on investment of 20%, and a beta of 1.5 on its stock. If the riskless rate is 5% and the expected return on the market portfolio is 15%, show whether these stocks are underpriced or overpriced. What is the assumption behind your calculation? (30%) b) Information about the following mutual funds were presented to prospective investors: Expected return 20% 12% i. ii. Fund name Ceteris Paribus Beta 1.8 1.0 Find the beta and expected return on the portfolio that puts 60% in Ceteris, 20% on Paribus and 20% in risk-free bonds. To achieve a rate of return of 25% by investing in Ceteris and Paribus only, what proportion of the money should be allocated to each fund? c) Discuss the similarities and differences between the CAPM and the APT. (20%) (50%)