Consider the following information about two stocks (D and E ) and two common risk factors ( 1 and 2) : a. Assuming that the risk-free rate is 5.3%, calculate the levels of the factor risk premia that are consistent with the reported values for the fai betas and the expected returns for the two stocks. Round your answers to one decimal place. 1: % A 2: % b. You expect that in one year the prices for Stocks D and E will be $57 and $36, respectively. Also, neither stock is expected to pay a dividend over the next year. What should the price of each stock be today to be consistent with the expected return levels listed at the beginning of ti problem? Round your answers to the nearest cent. Today's price for Stock D: $ Today's price for Stock E: \$ (3) Suppose now that the risk premium for Factor 1 that you calculated in Part a suddenly increases by 0.20%(i.e. from x% to (x+0.20)%, where x is the value established in Part a. What are the new expected returns for Stocks D and E? Round your answers to two decimal place: Expected return for Stock D: Expected return for Stock E: % d. If the increase in the Factor 1 risk premium in Part c does not cause you to change your opinion about what the stock prices will be in one ye what adjustment will be necessary in the current (i.e., today's) prices? Do not round intermediate calculations. Round your answers to the nearest cent. Today's price for Stock D: $ Today's price for Stock E: $ Consider the following information about two stocks ( D and E ) and two common risk factors (1 and 2 ): a. Assurning that the riskifree rate is 5.34, calculate the leveis of the factor risk premia that are consistent with the reported values for the foctor betas and the expected retums for the two stocks. Round your answers to one decimal place. A1 : % Ay: b. You expect that in one year the prices for 510ckO and E will be 557 and 436 , respectively. Also, neither stoxk is expected to pay a dividend over the next year. What thould the price of each stock be today to be consistert with the expected return ievels listed at the beginning of the problem? liourd your answers to the nearest cent. Today's price for Steck OI's. Tadby's price for stock E: $ in Part a. What are the new exbected feturns for 5 tocks D and E ? Round your answers to tho deciral places. Expected return for 5 tock D: Expected return for Stock Et: d. If the increase in the Factor 1 risk premium in Part c does not cause you to change your opinios about what the stock prices wil be in one year, what adjustment will be necessary in the current (i.e., todav's) prices? Do not round intermediate calculations. Round your answers to the nearest cent, Todey's price for 5 tock D: 5 Tosay's price for Stock E: $
