PLEASE ANSWER ALL PARTS:

PART A:

A stock just paid an annual dividend of $2. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6.

The required rate of return is 12%.

What is the value of the stock if the dividend growth rate will stay 0.05 (5%) forever after 6 years?

In 6 years, the P/E ratio is expected to be 19 and the payout ratio to be 80%. What is the value of the stock when using the P/E ratio?

PART B:

The return statistics for two stocks and T-bills are given below:

	A	B	C	D
1		Stock A	Stock B	T-bills
2	Expected return	0.094	0.065	0.02
3	Variance	0.1024	0.0729
4	Standard deviation	0.32	0.27
5	Covariance	0.02592

What is the Sharpe ratio of a portfolio with 50% invested in stock A and the rest in stock B?

PART C:

The return statistics for two stocks and T-bills are given below:

	A	B	C	D
1		Stock A	Stock B	T-bills
2	Expected return	0.094	0.073	0.02
3	Variance	0.1225	0.0729
4	Standard deviation	0.35	0.27
5	Covariance	0.02835

What is the Sharpe ratio of a portfolio with 80% invested in stock A and the rest in stock B?

What is the Sharpe ratio of the optimal risky portfolio?