Question
You have just bought 10 shares of JYPs stock for $10/share. The company announced that it will pay a dividend of $0.50/share in one year.
You have just bought 10 shares of JYPs stock for $10/share. The company announced that it will pay a dividend of $0.50/share in one year. If you want to earn a 9% return on your investment, what price do you need to sell the stock immediately after it pays the dividend? (hint: use stock realized return formula)
A. $10.4/share
B. $10.9/share
C. $19/share
D. $18.5/share
Consider now a different stock C. What is the expected return of this stock C if the firm will earn 30% during a period of economic boom, 10% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 60%, and 20%, respectively?
A. 10% |
B. 12.2% |
C. 12.4% |
D. 16% |
Stocks A and B had the following returns:
What was the average return of each stock?
Y ear | Stock A | Stock B |
1 | 9% | 6% |
2 | 12% | 8% |
3 | -4% | -1% |
4 | 1% | 5% |
A. Stock A: 4.5%, Stock B: 4.5%;
B. Stock A: 6%, Stock B: 4.5%;
C. Stock A: 6%, Stock B: 5.5%;
D. Stock A: 4.5%, Stock B: 5.5%;
Stocks A and B had the following returns:
What was the standard deviation of each stock?
Y ear | Stock A | Stock B |
1 | 9% | 6% |
2 | 12% | 8% |
3 | -4% | -1% |
4 | 1% | 5% |
A. Stock A: 0.073, Stock B: 0.039; |
B. Stock A: 0.037, Stock B: 0.039; |
C. Stock A: 0.073, Stock B: 0.052; |
D. Stock A: 0.073, Stock B: 0.073; |
Based on the results from Q4 and Q5, Stock A stock is considered more risky than Stock B after comparing their standard deviations?
True False
You have learned that the beta of A is 1.3 while the beta of B is 0.5. The risk-free rate is 3%.What are the required rate of returns (RRR) of A and B if the expected return to the market is 10%?(hint: CAMP formula)
A. Stock A: 12.1%, Stock: 6.5%;
B. Stock A: 16%, Stock: 8%;
C. Stock A: 16%, Stock: 6.5%;
D. Stock A: 13%, Stock: 8%;
Based on informations from Q7, Stock B is considered more risky relative to the market because it has a beta less than 1.
True False
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