problem 1: Suppose that the risk-free rate is 5% and that the market risk premium is 7%. If stock has a required rate of return of 13.75%, determine its beta?
a) 1.25
b) 1.35
c) 1.37
d) 1.60
e) 1.96
problem 2: An investor is making a portfolio by investing $50,000 in stock A which consists of a beta of 1.50, and $25,000 in stock B which consists of a beta of 0.90. The market risk premium is equivalent to 2% and Treasury bonds have a yield of 4%. Determine the required rate of return on the investor's portfolio?
a) 6.6%
b) 6.8%
c) 5.8%
d) 7.0%
e) 7.5%
problem 3: The probability distribution is shown; determine the expected return and the standard deviation of returns for Security J?
a) 15%; 6.50%
b) 12%; 5.18%
c) 15%; 3.16%
d) 15%; 10.00%
e) 20%; 5.00%
problem 4: If D1 = $2.00, g (which is constant) = 6% and P0 = $40, determine the stocks expected total return for the coming year?
a) 10.8%
b) 11.0%
c) 11.2%
d) 11.4%
e) 11.6%
problem 5: A stock is expected to pay a dividend of $1 at the end of year. The required rate of return is rs = 11% and the expected constant growth rate is 5%. Determine the current stock price?
a) $16.67
b) $18.83
c) $20.00
d) $21.67
e) $23.33