QUESTION 1

Part A: Suppose a company has just paid an annual dividend of $2.00 per share. The company expects to grow this dividend at an annual rate of 3.0%. The cost of capital for this stock is 10%. What is the expected dividend for next year?

		a. $1.85
		b. $1.98
		c. $2.06
		d. $2.17
		e. $2.29

Part B: An investor has a portfolio containing two investments. The first is $300,000 invested in the ETF SPY (an ETF that tracks the S&P500, the market portfolio) and the second is $200,000 invested in a savings account with his bank. The risk-free rate is 4.0%, and the expected return on the market is 8.0%. You may assume that the savings account pays the risk-free rate.What is the portfolio's beta (round to 2 decimal places)?

		a. .56
		b. .60
		c. .62
		d. .67
		e. .71