Question 1

Paul McLaren holds the following portfolio: $\begin{array}{lll}
Stock&Investment&Beta\
A&\$ 150,000 & 1.40 \
B&50,000 & 0.80 \
C&100,000 & 1.00 \
D&75,000 & 1.20\
Total&\$ 375,000 \
\end{array}$
Paul plans to sell Stock A and replace it with Stock E, which has a beta of 0.75. By how much will the portfolio beta change?

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
&&&Origina\
Stock& Investment& Percentage& Beta\
A&\$ 150,000 &  40.00 \% & 1.400 \
B&\$ 50,000 &  13.33 \% & 0.800 \
C&\$ 100,000 &  26.67 \% & 1.000 \
D&\$ 75,000 & 20.00 \% & 1.200\
\end{array}
\begin{array} { l ll} 
&New &\
Product& Beta&Product\
0.560 & 0.750 & 0.300 \
0.107 & 0.800 & 0.107 \
0.267 & 1.000 & 0.267 \
0.240 & 1.200 & 0.240 \
\end{array}
\end{array}$
 
Change in beta = New σ Old = σ0.260 Alternative solution: (bE σ bA) × %A = σ0.260

Question 2

Fiske Roofing Supplies' stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)

Accepted Answer

$\begin{array}{lr}
\text { Beta } & 1.23 \
\text { Risk-free rate } & 4.30 \% \
\text { Required return on stock } & 11.75 \% \
\mathrm{RP}_{\mathrm{M}}=\left(r_ \text {Stock }-r_{\mathrm{RF}}\right) / \text { beta } & 6.06 \% \
\text { Required return on market }=r_{\mathrm{RF}}+\mathrm{RP}_{\mathrm{M}}= & 10.36 \%
\end{array}$

Question 3

Hirshfeld Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D₁?

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text {Stock price}\
\text {Required return}\
\text {Growth rate}\
P_{0}=D_{1} /\left(r_{\mathrm{S}}-g\right), s o D_{1}=P_{0}\left(r_{s}-g\right)\
\text { Expected dividend }=\mathrm{D}_{1}=\mathrm{P}_{n}\left(\mathrm{r}_{\mathrm{S}}-\mathrm{g}\right)=
\end{array}
\begin{array} { l } 
 \$ 57.50\
10.25 \% \
 6.00 \% \
\
\$2.44
\end{array}
\end{array}$

Question 4

Megan Ross holds the following portfolio: $\begin{array}{lll}
Stock&Investment&Beta\
A&\$ 150,000 & 1.40 \
B&50,000 & 0.80 \
C&100,000 & 1.00 \
D&75,000 & 1.20\
Total&\$ 375,000 \
\end{array}$
What is the portfolio's beta?

Accepted Answer

$\begin{array}{llll}
Stock&Investment &Percentage&Beta&Product\
A&\$ 150,000 & 40.00 \% & 1.40 & 0.56 \
B&\$ 50,000 & 13.33 \% & 0.80 & 0.11 \
C&\$ 100,000 & 26.67 \% & 1.00 & 0.27 \
D&\$ 75,000 & 20.00 \% & 1.20 & 0.24 \
Total & \$ 375,000 & 100.00 \% && 1.17 &=\text { Portfolio beta }
\end{array}$

Question 5

Consider the following information and then calculate the required rate of return for the Universal Investment Fund, which holds 4 stocks. The market's required rate of return is 13.25%, the risk-free rate is 7.00%, and the Fund's assets are as follows: 
$\begin{array}{lll}
Stock&Investment&Beta\
A&\$ 200,000 & 1.50 \
B&\$ 300,000 & -0.50 \
C&\$ 500,000 & 1.25 \
D&\$ 1,000,000 & 0.75
\end{array}$

Accepted Answer

$\begin{array} { l r } 
r _ { \mathrm { M } } & 13.25 \% \
r _ { \mathrm { RF } } & 7.00 \%
\end{array}$ 
Find portfolio beta:
 $\begin{array}{llrr}
& \text { Weight }& \text { Beta }& \text { Product } \
\$ 200,000 &0.100& 1.50&0.1500 \
\$ 300,000 & 0.150 & -0.50 & -0.0750 \
\$ 500,000 & 0.250 & 1.25 & 0.3125 \
\$ 1,000,000 & \underline{0.500} & 0.75 & \underline{0.3750} \
\$ 2.000 .000 & 1.000 && 0.7625&=\text { portfolio beta }
\end{array}$ 
Find RPM = rM -rRF = 6.25% rs = rRF + b(RPM) = 11.77%

Question 6

Kellner Motor Co.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Kellner's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D₀?

Accepted Answer

$\begin{array} { l r } 
\text { Stock price } & \$ 25.00 \
\text { Required return } & 11.50 \% \
\text { Growth rate } & 7.00 \% \
P _ { 0 } = \mathrm { D } _ { 1 } / \left( r _ { s } - \mathrm { e } \right) , \text { so } \mathrm { D } _ { 1 } = \mathrm { P } _ { 0 } \left( \mathrm { r } _ { s } - \mathrm { e } \right) = & \$ 1.1250 \
\text { Last dividend } = \mathrm { D } _ { \mathrm { 0 } } = \mathrm { D } _ { 1 } / ( 1 + \mathrm { g } ) & \$ 1.05
\end{array}$

Question 7

CMS Corporation's balance sheet as of today is as follows: 
$\begin{array}{lr}
\text { Long-term debt (bonds, at par) } & \$ 10,000,000 \
\text { Preferred stock } & 2,000,000 \
\text { Common stock (\$10 par) } & 10,000,000 \
\text { Retained earnings } & 4,000,000 \
\hline \text { Total debt and equity } & \$ 26,000,000
\end{array}$
The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text { Calculate the price of each bond:}\
\text { Coupon rate}\
\text { Par value}\
\text { Maturity (Yrs)}\
\text { Periods/Yr.}\
\text { YTM}\
\
\text { N}\
\text { I/YR}\
\text { PMT}\
\text { FV}\
\end{array}
\begin{array} { l } 
4.0 \%\
\$ 1000\
10\
2\
12.0 \% \
\
20\
6.0\%\
\$ 20.00 \
\$ 1,000 \
 \$ 541.20 \
\end{array}
\end{array}$
 
Determine the number of bonds:
 $\begin{array} { l r } 
\text { Book value or balarice sheet } & \$ 10,000,000 \
\text { Par value } & \$ 1,000 \
\text { Nurnber of bonds = Book value/Par value } & 10,000
\end{array}$ 
Calculate the market value of bonds:
 Mrt value $ = $ PV $ \times $ Number of bonds $ = $ $ \quad $$ \quad $  $ \$ 5,412,032 $

Question 8

Company A has a beta of 0.70, while Company B's beta is 1.20. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return?(Hint: First find the market risk premium, then find the required returns on the stocks.)

Accepted Answer

$\begin{array} { l r } 
\text { Beta: A } & 0.70 \
\text { Beta: B } & 1.20 \
\text { Market return } & 11.00 \% \
\text { Risk-free rate } & 4.25 \% \
\text { Market risk premilun } & 6.75 \% \
\text { Required return A } = r _ { R F } + b _ { \mathrm { A } } \left( R P _ { \mathrm { M } } \right) = & 8.98 \% \
\text { Required return B } = r _ { \mathrm { RF } } + \mathrm { b } _ { \mathrm { B } } \left( \mathrm { RP } _ { \mathrm { M } } = \right. & 12.35 \% \
\text { Difference } & 338 \%
\end{array}$

Question 9

Alcott's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text {Pref. quarterly dividend}\
\text {Annual dividend =Qtrly dividend x 4= }\
\text {Preferred stock price}\
\text {Nom. required return =Annual dividend/Price =}\
\end{array}
\begin{array} { l } 
\$ 1.00 \
\$ 4.00 \
\$ 45.00 \
8.89 \%
\end{array}
\end{array}$

Question 10

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond's price?

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text { Par value } \
\text { Coupon rate } \
\text { Periodslyear } \
\text { Yrs to matur } \
N = \text { periods } \
\text { Armual rate } \
\text { Periodic rate } \
\text { PMT/period } \
\text { FV } \
\text { PV }
\end{array}
\begin{array} { r } 
\$ 1,000 \
6.25 \% \
2 \
10 \
20 \
4.75 \% \
2.38 \% \
\$ 31.25 \
\$ 1,000 \
\$ 1,119.31
\end{array}
\end{array}$

Question 11

Dyer Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Dyer's current stock price?

Accepted Answer

$\begin{array} { l r } 
\mathrm { D } _ { 1 } & \$ 1.25 \
b& 1.15 \
\mathrm { r } _{R F} & 4.00 \% \
\mathrm { RP } _ { \mathrm { M } } & 5.50 \% \
\mathrm {~g}  & 6.00 \% \
\mathrm { r } _ { s } = \mathrm { r } _ { \mathrm { RF } } + b \left( R P _ { \mathrm { M } } \right) =  & 10.33 \% \
\mathrm { P } _ { \mathrm { 0 } } = \mathrm { D } _ { 1 } / \left( \mathrm { r } _ { s } - \mathrm { g } \right) & \$ 28.90
\end{array}$

Question 12

Connolly Co.'s expected year-end dividend is D₁ = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Connolly's expected stock price in 7 years, i.e., what is ?

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text { Next expected dividend }=D_{1}=\
\text { Required return }\
\text { Dividend yield }=\mathrm{D}_{1} / \mathrm{P}_{0}=\
\text { Find the growth rate: } g=r_{\mathrm{S}}-\text { yield }=\
\text { Find } \mathrm{P}_{0}=\mathrm{D}_{1} /\left(\mathrm{r}_{\mathrm{S}}-\mathrm{g}\right)=\
\text { Years in the future }\
\mathrm{P}_{\gamma}=\mathrm{P}_{0}(1+g)^{7}
\end{array}
\begin{array} { l } 
 \$ 1.60\
 11.0 \% \
6.0\%\
5.0 \% \
\$ 26.67 \
7\
\$ 37.52
\end{array}
\end{array}$

Question 13

Brodkey Shoes has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 13.00%. Based on the SML, what is the firm's required return?

Accepted Answer

Use SML to determine the market risk premium. Note that rRF is based on T-bonds, not short-term T-bills.
 $\begin{aligned}
r _ { \mathbf { s } } & = r _ { \mathrm { RF } } + \mathrm { RP } _ { \mathrm { M } } \
13.00 \% & = 6.50 \% + \mathrm { RP } _ \mathrm { M } \
6.50 \% & = \mathrm { RP } _ { \mathrm { M } }
\end{aligned}$ 
Use the SML to determine the firm's required return using the RPM calculated above.
 $\begin{aligned}
\mathrm { s } & = r _ { R F } + R P _ { M } \times b \
& = 6.50 \% + 6.50 \% \times 1.30 \
& = 14.95 \%
\end{aligned}$

Question 14

Data for Atwill Corporation is shown below. Now Atwill acquires some risky assets that cause its beta to increase by 30%. In addition, expected inflation increases by 2.00%. What is the stock's new required rate of return?
 $\begin{array}{lr}
\text { Initial beta } & 1.00 \
\text { Initial required return }\left(\mathrm{r}_{\mathrm{s}}\right) & 10.20 \% \
\text { Market risk premium, } \mathrm{RP}_{\mathrm{M}} & 6.00 \% \
\text { Percentage increase in beta } & 30.00 \% \
\text { Increase in inflation premium, IP } & 2.00 \%
\end{array}$

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text { Old beta }\
Old r_{S}=1 R F+b\left(R P_{M}\right)\
\mathrm{RPM}_{\mathrm{M}}\
\text { Percentage increase in beta}\
\text { Increase in IP}\
\text { Find new beta after increase =}\
\text { Find old } \mathrm{rRF}_{\mathrm{RF}}: 01 \mathrm{~d}_{\mathrm{S}}=1 \mathrm{RF}+\mathrm{b}\left(\mathrm{RP}_{\mathrm{M}}\right): 10.2 \%=1 \mathrm{RF}+\
1.0(6.0 \%)\
r_ \mathrm{RF}=10.2 \%-6.0 \%=\
(\text { Find new 1RF: Old } r_ \mathrm{RF}+\text { increase in } \mathrm{IP}=\
\text { Find new } r_{\mathrm{S}}=\text { new } r_ \mathrm{RF}+\text { new beta(RPM) }
\end{array}
\begin{array} { l } 
1.00\
10.20 \% \
6.00 \% \
30.00 \% \
2.00 \% \
1.30 \
\ \
4.20 \% \
6.20 \% \
14.00 \%
\end{array}
\end{array}$

Question 15

Martin Ortner holds a $200,000 portfolio consisting of the following stocks: $\begin{array}{lll}
Stock&Investment&Beta\
A&\$ 50,000 & 0.95\
B&50,000 & 0.80 \
C&50,000 & 1.00 \
D&50,000 & 1.20\
Total&\$ 200,000 \
\end{array}$
What is the portfolio's beta?

Accepted Answer

$\begin{array}{llll}
Stock&Investment &Percentage&Beta&Product\
A&\$ 50,000 & 25.00 \% & 0.95 & 0.238 \
B&\$ 50,000 & 25.00 \% & 0.80 & 0.200 \
C&\$ 50,000 & 25.00 \% & 1.00 & 0.250 \
D&\$ 50,000 & 25.00 \% & 1.20 & 0.300\
Total & \$ 200,000 & 100.00 \% && 0.988 &=\text { Portfolio beta }
\end{array}$

Question 16

Macintosh Lumber believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's stock?
 $\begin{array}{lcc}
\text { State of } & \begin{array}{c}
\text { Probability } \
\text { of State }
\end{array} & \begin{array}{c}
\text { Stock's } \
\text { Expected }
\end{array} \

\text { the Economy } &\text { Occurring } &\text { Return }\
\text { Boom } & 0.45 & 25 \% \
\text { Normal }  & 0.50 & 15 \% \
\text { Repeseion }& 0.05 & 5 \%
\end{array}$

Accepted Answer

This is a relatively technical problem. It should be used only if calculations are emphasized in class, or on a take-home exam where students have time to look up formulas.
 $\begin{array}{l}
\begin{array}{lc}
\text { Probability of}& \text { Return}\
\text { This state }&\text { This state }\
0.45 & 25.00 \% \
0.50 & 15.00 \% \
0.05 & 5.00 \%\
\text { Expected  return =}&19.00\%
\end{array}
\begin{array}{ccc}
\text { Deviation}& \text { Squared}& \text { State Prob } \
\text { from Mean }& \text {Deviation }  & \text { x Sq. Dev. }\
6.00 \% & 0.36 \% & 0.1620 \% \
-4.00 \% & 0.16 \% & 0.0800 \% \
-14.00 \% & 1.96 \% & 0.0980 \%\
&0.34 \% &  0.3400 \%&\text {Expected variance }\
&\sigma=5.83 \%
\end{array}
\end{array}$
Coefficient of variation $ =\sigma / $ Expected
$\text { return = }$ $ 0.3069 $

Question 17

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P₀?

Accepted Answer

$\begin{array} { l r } 
\mathrm { D } _ { \mathrm { 0 } } & \$ 0.75 \
b & 1.15 \
\mathrm { r } _ { \mathrm { RF } }& 4.0 \% \
\mathrm { RP } _ { \mathrm { M } }  & 5.0 \% \
g& 5.5 \% \
\mathrm { D } _ { 1 } = \mathrm { D } _ { 0 } ( 1 + \mathrm { g } ) = & \$ 0.7913 \
\mathrm { r } _ { s } = \mathrm { r } _ { \mathrm { RF } } + \mathrm { b } \left( \mathrm { RP } _ { \mathrm { M } } \right) = & 9.75 \% \
\mathrm { P } _ { \mathrm { D } } = \mathrm { D } _ { 1 } / \left( \mathrm { r } _ { s } - \mathrm { g } \right) & \$ 18.62
\end{array}$

Question 18

National Advertising just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?

Accepted Answer

$\begin{array} { l r } 
\mathrm { D } _ { \mathrm { 0} } & \$ 0.75 \
\mathrm {~b} & 1.25 \
\mathrm { r } _ { \mathrm { RF} } & 4.5 \% \
\mathrm { r } _ { \mathrm { M } } & 10.5 \% \
g& 6.5 \% \
\mathrm { D } _ { 1 } = \mathrm { D } _ { \mathrm { 0} } ( 1 + \mathrm { g } ) = & \$ 0.7988 \
\mathrm { r } _ { s } = \mathrm { r } _ { \mathrm { RF } } + \mathrm { b } \left( r_\mathrm { M } - \mathrm { R } _ { \mathrm { RF } } \right) = & 12.0 \% \
\mathrm { P } _ { \mathrm { 0 } } = \mathrm { D } _ { 1 } / \left( \mathrm { r } _ { 5 } - \mathrm { g } \right) & \$ 14.52
\end{array}$

Question 19

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal) rate of return?

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text { Periods per vear }=\
\text { Pref. quarterly dividend}\
 \text { Preferred stock price}\
\text { Eff } \% \text { required return }=(1+(\mathrm{Qt} \mathrm{Div} / \mathrm{P}))^{N}-1=
\end{array}
\begin{array} { l } 
4\
\$ 1.00\
 \$ 55.00\
7.47 \% \
\end{array}
\end{array}$

Question 20

Jenna holds a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. Jenna plans to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80. What will the portfolio's new beta be?

Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\text { \% in each stock:}\
\text { Old stock's beta:}\
\text { New stock's beta:}\
\text { Old port. beta:}\
\end{array}
\begin{array} { l } 
5\%\
0.90\
1.80\
1.12
\end{array}
\end{array}$
 
New beta = (bNew σ bOld) × %A + bOld = 1.165

Quiz 29: Basic Financial Tools: A review

Fiske Roofing Supplies' stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)

Hirshfeld Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D₁?

Megan Ross holds the following portfolio: $\begin{array}{lll}Stock&Investment&Beta\\A&\$ 150,000 & 1.40 \\B&50,000 & 0.80 \\C&100,000 & 1.00 \\D&75,000 & 1.20\\Total&\$ 375,000 \\\end{array}$ What is the portfolio's beta?

Kellner Motor Co.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Kellner's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D₀?

Alcott's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond's price?

Connolly Co.'s expected year-end dividend is D₁ = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Connolly's expected stock price in 7 years, i.e., what is ?

Brodkey Shoes has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 13.00%. Based on the SML, what is the firm's required return?

Martin Ortner holds a $200,000 portfolio consisting of the following stocks: $\begin{array}{lll}Stock&Investment&Beta\\A&\$ 50,000 & 0.95\\B&50,000 & 0.80 \\C&50,000 & 1.00 \\D&50,000 & 1.20\\Total&\$ 200,000 \\\end{array}$ What is the portfolio's beta?

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P₀?

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal) rate of return?

Jenna holds a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. Jenna plans to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80. What will the portfolio's new beta be?

Quiz 29: Basic Financial Tools: A review

Fiske Roofing Supplies' stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)

Hirshfeld Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?

Kellner Motor Co.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Kellner's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0?

Alcott's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond's price?

Connolly Co.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Connolly's expected stock price in 7 years, i.e., what is ?

Brodkey Shoes has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 13.00%. Based on the SML, what is the firm's required return?

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P0?

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal) rate of return?

Jenna holds a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. Jenna plans to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80. What will the portfolio's new beta be?

Hirshfeld Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D₁?

Kellner Motor Co.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Kellner's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D₀?

Connolly Co.'s expected year-end dividend is D₁ = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Connolly's expected stock price in 7 years, i.e., what is ?

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P₀?