Question 11(below information is used through questions 11-14):

You have just done a regression of monthly stock returns of Royal Inc., on monthly market returns

over the past five years and have come up with the following regression:

"=0.03+1.4+

The variance of the stock is 50%, and the variance of the market is 20%. The current risk-free rate is 3% (it was 5% one year ago) and the market risk premium is 8.76%. The stock is currently selling for $50, down $4 over the past year; it has paid a dividend of $2 during the past year and expects to pay a dividend of $2.50 over the next year. Royal Inc. has a tax rate of 40%. Estimate the expected return on the stock.

A. % 13.51

B. % 15.26

C. % 17.12

D. % 18.2

Question 12:

Given information in Q11, how much do you expect Royal Inc. price will be one year from now after ex-dividend date?

A. $55.13

B. $54.25

C. $57.63

D. $56.75

Question 13:

Given the information in Q11, what would you have expected for Royal Inc. return over the past year.

A. % 19.41

B. % 18.12

C. % 17.26

D. % 15.51

Question 14:

Royal Inc. has $100 million in equity and $70 million in debt. It plans to issue $50 million in new equity and retire $70 million in debt. Estimate the new beta.

A. 0.88

B. 0.90

C. 0.92

D. 0.98