QUESTION TWO Floyd Industries stock has a beta of 1.50. The company just paid a dividend of K0.80, and the dividends are expected to grow at 5 percent per year. The expected return on the market is 12 percent, and Treasury bills are yielding 5.5 percent. The most recent stock price for Floyd is K61.00. Dental Disand u dan (1) Calculate the cost of equity using the DDM method. DVM (5 marks) (1) Calculate the cost of equity using the SML method. CAPM (5 marks) (11) Why do you think your estimates in (a) and (b) are so different? (10 marks) Total (20 marks) QUESTION THREE (a) Combining two or more assets in an investment portfolio will typically lead to diversification benefits. (i) What is the benefit of diversification? (5 marks) (ii) What is the general condition under which diversification will have benefits? Briefly explain why (5 marks) (b) Stocks for Fumbeshi and Mundashi have the following historical returns: FV=P(1+62 Co's dindad QUESTION TWO Floyd Industries stock has a beta of 1.50. The company just paid a dividend of K0.80, and the dividends are expected to grow at 5 percent per year. The expected return on the market is 12 percent, and Treasury bills are yielding 5.5 percent. The most recent stock price for Floyd is K61.00. Dental Disand u dan (1) Calculate the cost of equity using the DDM method. DVM (5 marks) (1) Calculate the cost of equity using the SML method. CAPM (5 marks) (11) Why do you think your estimates in (a) and (b) are so different? (10 marks) Total (20 marks) QUESTION THREE (a) Combining two or more assets in an investment portfolio will typically lead to diversification benefits. (i) What is the benefit of diversification? (5 marks) (ii) What is the general condition under which diversification will have benefits? Briefly explain why (5 marks) (b) Stocks for Fumbeshi and Mundashi have the following historical returns: FV=P(1+62 Co's dindad