FINANCIAL MODELING

16 Question 7 Consider three stocks C, D and F which trade in market with the following details: Stock D F. Expected rate of return 5.38% 12.88% 0.50% Forecast for 2022 Dividend Stock price R0.50 R45 R0.00 R75 R1.00 R20 Assume that a risk-free rate is 2% and an expected rate of return for the market portfolio (M) is 9.5%. Moreover, a dividend will be paid after one year and the CAPM holds. 7.1 Determine the equation of the security market line (expressed in terms of B) and represent the equation on a (B; F)- diagram. Indicate the position of the risk-free asset and the market on the diagram. 151 7.2 Determine the beta of each stock. 31 7.3 Determine today's price for each stock. [6] 7.4 Suppose that the general stock market goes up by 20%. Explain how the stock D will react. (2) 16 Question 7 Consider three stocks C, D and F which trade in market with the following details: Stock D F. Expected rate of return 5.38% 12.88% 0.50% Forecast for 2022 Dividend Stock price R0.50 R45 R0.00 R75 R1.00 R20 Assume that a risk-free rate is 2% and an expected rate of return for the market portfolio (M) is 9.5%. Moreover, a dividend will be paid after one year and the CAPM holds. 7.1 Determine the equation of the security market line (expressed in terms of B) and represent the equation on a (B; F)- diagram. Indicate the position of the risk-free asset and the market on the diagram. 151 7.2 Determine the beta of each stock. 31 7.3 Determine today's price for each stock. [6] 7.4 Suppose that the general stock market goes up by 20%. Explain how the stock D will react. (2)