Objective type questions based on cost of capital and portfolio management

1) The risk-free rate of interest, kRF, is 6 percent. The overall stock market has an expected return of 12 percent. Hazlett, Inc. has a beta of 1.2. What is the required return of Hazlett, Inc. stock?

a. 12.0%

b. 12.2%

c. 12.8%

d. 13.2%

e. 13.5%

2) Waters Corporation has a stock price of $20 a share The stock's year-end dividend is expected to be $2 a share (D1 = $2.00). The stock's required rate of return is 15 percent and the dividend is expected to grow at the same constant rate forever. What is the expected price of the stock seven years from now?

a. $28

b. $53

c. $27

d. $23

e. $39

3) Cartwright Brothers stock is currently selling for $40 a share. The stock is expected to pay a $2 dividend at the end of the year. The stock\'s dividend is expected to grow at a constant rate of 7 percent a year forever. The risk-free rate (kRF) is 6 percent and the market risk premium (kM ? kRF) is also 6 percent. What is the stock's beta?

a. 1.06

b. 1.00

c. 2.00

d. 0.83

e. 1.08