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Need some help understanding some sample questions of this chapter. 1. Suppose a stock had an initial price of $64 per share, paid a dividend
Need some help understanding some sample questions of this chapter.
1. Suppose a stock had an initial price of $64 per share, paid a dividend of $1.20 per share during the year, and had an ending share price of $73. a. What is the dividend yield? What is the capital gains yield? 2. What would the percentage total return, dividend yield, and capital gains yield assuming the ending share price is $57? 3. State of Economy Recession Normal Boom Probability of State of Economy .30 .55 .15 Rate of Return if State Occurs Stock A .06 .07 .11 Stock B -.20 .13 .33 a. Calculate the Expected return and standard deviation for the two stocks. 4. State of Economy Depression Recession Normal Boom Probability of State of Economy .15 .30 .45 .10 Rate of Return if State Occurs -.105 .059 .130 .211 a. Calculate the Expected return and standard deviation. 5. A stock has a bet of 1.15, the expected return on the market is 10.6 percent, and the risk-free rate is 4.5 percent. What must the expected return on this stock be using CAPM. 6. A stock has an expected return of 13.4 percent, the risk-free rate is 3.8 percent, and the market risk premium is 7 percent. What must the beta of this stock be using CAPM. 7. Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .11, E(RB) = .13, A = .39, and B = .76. a. Calculate the expected return and standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation between the returns on A and B is .5. b. Calculate the standard deviation of a portfolio with the same portfolio weights as in part (a) when the correlation coefficient between the returns on A and B is -.5. c. How does the correlation between the returns on A and B affect the standard deviation of the portfolioStep by Step Solution
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