7. Suppose you held a diversified portfolio consisting of 10 different common stocks, investing $500 in each stock. The portfolio's beta is 1.9. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 0.8 for $500 and use the proceeds to buy another stock with a beta of 1.25. What would your portfolio's new beta be?* a) 1.945 b) 2.025 c) 3.865 d) 4.2 None of the above 8. Company X has a beta of 1.75, while Company Y has a beta of 2.1. The return on the market is 14%, and the risk-free rate is 7%. By how much does Company Y's required return exceed Company X's required return?* a) $2.45 b) 3.75% O c) 4.2% d) 2.45% None of the above 9. An individual has $3,000 invested in a stock with a beta of 0.7 and another $10,000 invested in a stock with a beta of 2.4. If these are the only two investments in his portfolio, what is his portfolio's beta?* a) 2.84 Ob) 2% c) $3.84 d) 2 None of the above 10. A fund manager is holding the following 4 stocks. The risk-free rate is 5 percent and the market risk premium is also 5 percent. If the manager sells half of her investment in Stock 2 ($280 million) and puts the money in Stock 4, by ho many percentage points will her portfolio's required return increase? Stock 1 Amount Invested $300 million 560 million 320 million 230 million Beta 1.2 1.4 2 3 4 0.7 1.8 a) 0.40% Ob) 0.22% Oc) 2.00% d) 0.20% None of the above 11. Womack Toy Company's stock is currently trading at $25 per share. The stock's dividend is projected to increase at a constant rate of 7 percent per year. The required rate of return on the stock, Rs, is 10 percent. What is the expected price of the stock 4 years from today?* a) $36.60 O b) $34.15 O c) $28.39 d) $32.77 O None of the above 12. London's stock has a required return of 12%, and the stock sells for $40 per share. The firm just paid a dividend of $1, and the dividend is expected to grow by 30% per year for the next 4 years. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after t = 4. i.e., what is X?* a) 5.17% Ob) 5.44% OC) 5.72% d) 6.34% None of the above