Question 1: Consider two stocks, A and B. Stock A is currently traded at a price of $30, it is expected to pay a dividend of $1 next year and to sell then at a price of $32. Stock B is currently traded at $15, and it is expected to pay a dividend of $0.5 next year and to sell then at a price of $16. Stock A has a beta of 1.2 and stock B has a beta of 1.5. The expected market rate of return is 9% and the risk-free rate is 5%. Which stock is a better buy? Must show detailed computations to support your conclusion.

Question 2:Growth Inc. has an expected earnings of $4 per share for next year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Growth Inc. has a beta of 1.2. Investors use the CAPM to compute the market capitalization rate and use the constant-growth DDM to determine the value of the stock.

1. (6 points) Assume that Growth Inc. maintains a 100% dividend payout policy, what is the most that you will pay for its stock?
2. (7 points) If Growth Corp just discovers a new growth opportunity with an ROE of 20%. The management decides to pay out 40% of its earnings starting from the next years dividend and forever after, so that it can reinvest the rest in the growth opportunity. Suppose the growth opportunity lasts forever, what is the present value of its growth opportunity (PVGO)?

Question 3:John purchased a treasury bond with exactly five years until maturity, which pays coupon annually. The bond has a par value of $1,000, a 5% annual coupon rate, and a current yield to maturity (YTM) of 6%. After exactly three years, John sold the bond to another investor, with the yield to maturity of 4%. What is the holding period return for this bond investment? You must provide detailed calculation to receive credits

Question 4:You are considering investing in two mutual fund. Fund A has a front-end load of 4% and no 12b-1 fee; Fund B has no front-end load but a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, which is a better choice, Fund A or Fund B? Assume a 10% annual return net of expenses before the 12b-1 fee is applied. Must provide relevant computations to support your conclusion.

Question 5: ) You invest 50% in a risky portfolio, and 50% in a treasury bill. The risky portfolio has an expected return of 15% and a standard deviation of 25%. The Treasury bill pays 7%. Suppose that your risky portfolio includes the following investments in the given proportions:

Stock A 30%

Stock B 30%

Stock C 30%

Stock D 10%

A: (2) What are the investment proportions of the complete portfolio, including the position in the treasury bill?

B: (3) What is the expected return and standard deviation of your complete portfolio?

C: (3) What is the Sharpe ratio of the risky portfolio? What is the Sharpe ratio of the complete portfolio?

D: Instead of investing 50% in the risky portfolio, you now decide to invest in the risky portfolio a proportion (y) of your total investment budget so that your complete portfolio will have an expected return of 12%. What is the proportion of y? What is the standard deviation of your complete portfolio?