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The following data have been developed for a listed company, Happy Cat. table [ [ Year , Market's Return,Happy Cat's Return ] , [
The following data have been developed for a listed company, Happy Cat.
tableYearMarket's Return,Happy Cat's Return
The YTM on riskfree Treasury Bills is and is expected to remain at this point for the foreseeable future.
a Calculate the sample variance of the market return. Show your calculations. Correct your answers to decimal places.
marks
b Find the sample covariance between the return for Happy Cat and the market. Show your calculations. Correct your answers to decimal places. marks
c Calculate the beta of Happy Cat. Show your calculations.
marks
d Use the CAPM to find the required rate of return of Happy Cat.
marks
e If Happy Cat distributes $ annual dividend in one year and the annual dividend is assumed to grow at per year indefinitely, find the fair stock price of Happy Cat now. Show your workings.
marks
f Suppose Steven buys shares of Happy Cat at the fair stock price now. If the market drops by in one month, estimate the dollar amount of capital gain or loss for his investment in one month. Explain your answer. marks
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