Question
The management of Ark Industries wants to analyze the performance of the companys stock in the stock market. They want to compare the stock performance
The management of Ark Industries wants to analyze the performance of the companys stock in the stock market. They want to compare the stock performance with Apex Inc, a strong competitor in the industry, and the market index. The following data is available for managerial finance analysis.
|
Year |
Ark Industries |
Apex Incorporated | Market Index | ||||
| Capital gain/loss |
Dividend | Purchased Price | Capital gain/loss |
Dividend | Purchased price | Rate of Return | |
| 2020 | $6.79 | $2.23 | $23.53 | $5.80 | $3.52 | $79.32 | 51.8% |
| 2019 | -$5.08 | $2.65 | $28.61 | $5.00 | $3.65 | $74.32 | 1.30% |
| 2018 | $13.40 | $2.73 | $15.21 | -$12.80 | $3.45 | $87.12 | 11.90% |
| 2017 | $2.58 | $2.57 | $12.63 | -$8.00 | $3.47 | $95.12 | 13.90% |
| 2016 | -$0.58 | $2.23 | $13.21 | $10.88 | $3.55 | $84.25 | 15.80% |
*Capital gain = difference between ending price and beginning price
- An individual investor, James Bond needs an extra return of 6.0% before he will take on the stock markets risk to invest in Ark Industries. If the risk-free rate on long-term Treasury bonds is 5.0%. what would be the required return on the market?
- James Bond wants to determine the required rate of return on two stocks (stock A and stock B) that he just added to his portfolio. The following information is available: Market rate of return = 11.0%; Risk free rate =5.0%; Beta for stock A= 0.77; Beta for stock B = 0.99. Use the Security Market Line (SML) equation to calculate the required rate of return for stock A and stock B.
Richard Morgan, another individual investor wants to purchase four stocks for his portfolio. The expected return, portfolio weights, and the betas of the stocks are given below:
| Stocks | Beta | Portfolio weight | Expected return |
| Goodman Industries | 0.70 | 30% | 9.20% |
| Renfro Inc. | 0.79 | 20% | 9.74% |
| Heath Inc. | 1.10 | 30% | 11.60% |
| Lincoln Inc. | 1.44 | 20% | 13.64% |
3. Calculate the portfolio beta.
4. Calculate the portfolios required returnGoodman Industries is expected to pay a $4.50 per share dividend at the end of this year (i.e., D1 = $4.50). The dividend is expected to grow at a constant rate of 5% a year. The required rate of return on the stock is, rs, is 9.2%. What is the estimated value per share of Goodman stock?
*** please do it step by step ***
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Crime And Punishment In The Future Internet
Authors: Sanja Milivojevic
1st Edition
036746800X, 978-0367468002
