Instructions: You are required to use a financial calculator or spreadsheet (Excel) to solve the problems (provided on page 4) related to risk and return characteristics and stock/bond valuation. You are required to show the following three steps for each problem (sample problems and solutions are provided for guidance):

(i) Describe and interpret the assumptions related to the problem.

(ii) Apply the appropriate mathematical model to solve the problem.

(iii) Calculate the correct solution to the problem.

You have $100,000 invested in a three-stock technology portfolio. $30,000 is invested in FB, $40,000 in AMZN, and the remainder is invested in MSFT. The beta of FB is 1.06, the beta of AMZN is 1.72, and the beta of MSFT is 0.95. What is the portfolios beta (round your answer to two decimal places)?

The market return, based on a broad market index (i.e. the S&P 500), is estimated to be 8%. Calculate Company XYZs required return if the risk-free rate is 1% and the stocks beta is 1.25 (round your answer to two decimal places).

A companys stock had a required return of 11.50% last year, when the risk-free rate was 5.50% and the market risk premium was 7.45%. Now, suppose there is a shift in investor risk aversion, and the market risk premium increases by 2%. The risk-free rate and the beta remain unchanged. What is this companys new required return (round your answer to two decimal places)?

A firm has a non-callable bond maturing in 9 years with a par value of $1,000. Those bonds make annual coupon payments of $64. The market interest rate on similar bonds is 4.125%. What is the bonds price (round your answer to two decimal places)?

A companys non-callable bonds currently sell for $1,210. They have a 20-year maturity, a coupon rate of 7% with semiannual payments, and a par value of $1,000. What is their yield to maturity (round your answer to two decimal places)?

Assume that you are considering the purchase of a 10-year bond with coupon rate of 9.75%. The bond has a par value of $1,000 and makes semiannual interest payments. If you require a 10% yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond (round your answer to two decimal places)?

A share of common stock has just paid a dividend of $2.10. If the expected long-run growth rate for this stock is 5%, and if investors required return is 10%, what is the current stock price (round your answer to two decimal places)?

A company plans to issue preferred stock with an annual dividend of $6.50 per share. If the required return on this is 5.80%, at what price should the stock sell (round your answer to two decimal places)?

The most recent dividend paid by a company was $1.25. The dividends are expected to maintain a constant growth rate of 4% forever. If the stock currently sells for $23.50 per share, what is the required return (round your answer to two decimal places)?

A company just paid a dividend of $0.85 per share and the dividend is expected to grow at a constant rate of 6% per year in the future. The companys beta is 1.35, the market risk premium is 5.50%, and the risk-free rate is 3.45%. What is the companys current stock price (round your answer to two decimal places)?