1) 2 stocks are available. Corresponding expected rates of return are r1 and r2; corresponding variances and covariance are σ12, σ22 and σ12. What percentages of total investment must be invested in each of 2 stocks to minimize total variance of rate of return of resulting portfolio? Determine the mean rate of return of this portfolio?
2) Dell Computers has the outstanding issue of bond with par value of= $1,000, paying 8% coupon rate. Bond has 10 years to maturity.
(a) What is the value of the bond assuming 7% required rate of return?
(b) If Dell Computers bond paid interest semi-annually, how much must the bond sell?
(c) Assume bond is currently selling for= $898.55, compute the bond's YTM? (yield to maturity)
3) Target Company paid $1.00 per share in common stock dividends last year. Dividends of company are expected to grow at= 5% rate in next 3 years. After three years, dividend is expected to grow at constant growth of 7% indefinitely. Determine value of Target's common stock? Stockholders need a return of 10% to invest in Target's common stock.