Question : Answer the following questions: (10 Marks)

1. Sandy Corp believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's stock?

Probability Stock's

State of of State Expected

the Economy Occurring Return

Boom 0.45 25%

Normal 0.50 15%

Recession 0.05 5%

2. Sara Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?