Calculate the stock's expected return. round your answer to two decimal places.

1 The Starr Co. just paid a dividend of $1.85 per share on its stock.

The dividends are expected to grow at a constant rate of 4 percent per year, indefinitely.

Investors require a return of 12 percent on the stock.

What is the current price? (Do not round intermediate calculations and round your answer

to 2 decimal places, e.g., 32.16.)

  Current price

$

What will the price be in three years? (Do not round intermediate calculations and ro

und your answer to 2 decimal places, e.g., 32.16.)

  Stock price

$

What will the price be in 14 years? (Do not round intermediate calculations and round your

answer to 2 decimal places, e.g., 32.16.)

  Stock price

$

2 Schiller Corporation will pay a $2.82 per share dividend next year. The company pledges to i

ncrease its dividend by 3 percent per year, indefinitely. If you require a return of 10 percent on

your investment, how much will you pay for the company’s stock today? (Do not round

intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

3.

Siblings, Inc., is expected to maintain a constant 3 percent growth rate in its dividends,

indefinitely. The company has a dividend yield of 4.8 percent.

What is the required return on the company's stock? (Do not round intermediate calculations

and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

4.

Ayden, Inc., has an issue of preferred stock outstanding that pays a dividend of $4.55 every year,

in perpetuity. This issue currently sells for $96 per share.

What is the required return? (Do not round intermediate calculations and enter your answer as a

percent rounded to 2 decimal places, e.g., 32.16.)

  Required return

 %

5.

Lohn Corporation is expected to pay the following dividends over the next four years: $16, $12, $11, and $6.50. Afterwards, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 12 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Current share price

$

6.

Phillips Co. is growing quickly. Dividends are expected to grow at a rate of 22 percent for the

next three years, with the growth rate falling off to a constant 4 percent thereafter. If the required r

eturn is 12 percent and the company just paid a dividend of $1.60, what is the current

share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Current share price

$

7,Mau Corporation stock currently sells for $82 per share. The market requires a return of 10.2 percent

on the firm’s stock. If the company maintains a constant 3.1 percent growth rate in dividends, what

was the most recent dividend per share paid on the stock? (Do not round intermediate

calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Dividend paid per share

$

8.FFDP Corp. has yearly sales of $29 million and costs of $13.9 million.

The company’s balance sheet shows debt of $55 million and cash of $39 million.

There are 1,960,000 shares outstanding and the industry EV/EBITDA multiple is 8.5.

What is the company’s enterprise value? (Enter your answer in dollars, not millions of dollars,

e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest

whole number, e.g., 32.)

  Enterprise value

$

What is the stock price per share? (Do not round intermediate calculations

and round your answer to 2 decimal places, e.g., 32.16.)

  Stock price

$

1.

What are the portfolio weights for a portfolio that has 124 shares of Stock A that sell for

$34 per share and 104 shares of Stock B that sell for $24 per share? (Do not round i

ntermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Portfolio weights

  Stock A

  Stock B

2.

You own a portfolio that has $3,800 invested in Stock A and $4,800 invested in

Stock B. If the expected returns on these stocks are 8 percent and 11 percent,

respectively, what is the expected return on the portfolio? (Do not round intermediate

calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Portfolio expected return

 %

3.

You own a portfolio that is 38 percent invested in Stock X, 22 percent in Stock Y, and

40 percent in Stock Z. The expected returns on these three stocks are 10 percent,

15 percent, and 12 percent, respectively. What is the expected return on the portfolio?

 (Do not round intermediate calculations and enter your answer as a percent rounded to

2 decimal places, e.g., 32.16.)

  Portfolio expected return

 %

4.

Based on the following information:

  State of Economy

Probability of State of Economy

Rate of Return if State Occurs

  Depression

.14

−.109

  Recession

.21

.055

  Normal

.48

.126

  Boom

.17

.207

Calculate the expected return. (Do not round intermediate calculations and enter

your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Expected return

  %

Calculate the standard deviation. (Do not round intermediate calculations and e

nter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Standard deviation

  %

5.

A portfolio is invested 10 percent in Stock G, 50 percent in Stock J, and 40 percent in Stock K.

The expected returns on these stocks are 9 percent, 15 percent, and 19 percent, respectively.

What is the portfolio's expected return? (Do not round intermediate calculations and enter

your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Portfolio's expected return

 %

6.You own a portfolio equally invested in a risk-free asset and two stocks.

If one of the stocks has a beta of 1.29 and the total portfolio is equally

as risky as the market, what must the beta be for the other stock in your portfolio?

(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Stock beta

7.

A stock has a beta of 1.22, the expected return on the market is 12 percent,

and the risk-free rate is 4 percent. What must the expected return on this stock be?

(Do not round intermediate calculations and enter your answer as a percent rounded to

2 decimal places, e.g., 32.16.)

  Expected return

 %

8.

You have $300,000 to invest in a portfolio containing Stock X and Stock Y.

Your goal is to create a portfolio that has an expected return of 13.2 percent. Stock X has an expected return of

11.88 percent and a beta of 1.38, and Stock Y has an expected return of 8.16 percent and a beta of .76.

How much money will you invest in Stock Y? (A negative answer should be indicated by a minus sign.

Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Investment in Stock Y

$

What is the beta of your portfolio? (Do not round intermediate calculations and round your answer

to 2 decimal places, e.g., 32.16.)

  Portfolio beta

9.

Based on the following information:

  State of Economy

Probability of State of Economy

Return on Stock J

Return on Stock K

  Bear

.20

−.030

.024

  Normal

.55

.128

.052

  Bull

.25

.208

.082

Calculate the expected return for each of the stocks. (Do not round intermediate

calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected return

  Stock J

%

  Stock K

%

Calculate the standard deviation for each of the stocks. (Do not round intermediate calculations

and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Standard deviation

  Stock J

%

  Stock K

%

What is the covariance between the returns of the two stocks? (Do not round intermediate

calculations and round your answer to 6 decimal places, e.g., 32.161616.)

  Covariance

What is the correlation between the returns of the two stocks? (Do not round intermediate

calculations and round your answer to 4 decimal places, e.g., 32.1616.)

  Correlation

10.

There are two stocks in the market, Stock A and Stock B . The price of Stock A today is $74.

The price of Stock A next year will be $63 if the economy is in a recession, $86

if the economy is normal, and $96 if the economy is expanding. The probabilities of recession,

normal times, and expansion are .19, .61, and .20, respectively. Stock A pays no dividends

and has a correlation of .69 with the market portfolio. Stock B has an expected return of 13.9 percent,

a standard deviation of 33.9 percent, a correlation with the market portfolio of .23, and a correlation with Stock A of .35. The market portfolio has a standard deviation of 17.9 percent. Assume the CAPM holds.

a-1.

What is the return for each state of the economy for Stock A?

(A negative answer should be indicated by a minus sign.

Do not round intermediate calculations and enter your answers as

a percent rounded to 2 decimal places, e.g., 32.16.)

Return

  Recession

  %

  Normal

  %

  Expansion

  %

a-2.

What is the expected return of Stock A?

 (Do not round intermediate calculations and enter your answer

as a percent rounded to 2 decimal places, e.g., 32.16.)

  Expected return

 %

a-3.

What is the variance of Stock A? (Do not round intermediate

calculations and round your answer to 4 decimal places, e.g., 32.1616.)

  Variance

a-4.

What is the standard deviation of Stock A? (Do not round

intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Standard deviation

 %

a-5.

What is the beta of Stock A? (Do not round intermediate calculation

s and round your answer to 3 decimal places, e.g., 32.161.)

  Beta of Stock A

a-6.

What is the beta of Stock B? (Do not round intermediate

calculations and round your answer to 3 decimal places, e.g., 32.161.)

  Beta of Stock B

If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer?

Stock B

Stock A

b-1.

What is the expected return of a portfolio consisting of 65 percent of Stock A and 35 percent of Stock B?

(Do not round intermediate calculations and enter your answer as a percent rounded to

2 decimal places, e.g., 32.16.)

  Expected return

 %

b-2.

What is standard deviation of a portfolio consisting of 65 percent of Stock A and 35 percent of Stock B?

(Do not round intermediate calculations and enter your answers as a percent rounded

to 2 decimal places, e.g., 32.16.)

  Standard deviation

 %

c.

What is the beta of the portfolio in part (b)? (Do not round

intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

  Beta of the portfolio

1.

The Dybvig Corporation’s common stock has a beta of 1.2. If the risk-free rate is 4.3 percent and t

he expected return on the market is 13 percent, what is Dybvig’s cost of equity capital?

 (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Cost of equity capital

 %

3.

Mullineaux Corporation has a target capital structure of 60 percent common stock and

40 percent debt. Its cost of equity is 16 percent, and the cost of debt is 10 percent. The relevant tax rate is 30 percent.

What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  WACC

 %

4.

Miller Manufacturing has a target debt–equity ratio of .30.

Its cost of equity is 12 percent, and its cost of debt is 7 percent.

If the tax rate is 34 percent, what is the company’s WACC?

 (Do not round intermediate calculations and enter your answer

as a percent rounded to 2 decimal places, e.g., 32.16.)

  WACC

 %

5.

Fama’s Llamas has a weighted average cost of capital of 9.4 percent.

The company’s cost of equity is 11 percent, and its cost of debt is 7.4 percent.

The tax rate is 40 percent. What is the company’s debt–equity ratio?

 (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

  Debt−equity ratio

6.

Filer Manufacturing has 9 million shares of common stock outstanding.

The current share price is $81, and the book value per share is $8

. The company also has two bond issues outstanding. The first bond i

ssue has a face value $80 million, a coupon of 10 percent, and sells for

96 percent of par. The second issue has a face value of $50 million, a

coupon of 11 percent, and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years.

a.

What are the company's capital structure weights on a book value basis?

 (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

  Equity / Value

  Debt / Value

b.

What are the company's capital structure weights on a market value basis?

 (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

  Equity / Value

  Debt / Value

c.

Which are more relevant?

Market value weights

Book value weights

7.

Titan Mining Corporation has 9.8 million shares of common stock outstanding and 420,000

5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $46 per share and has a beta of 1.4, and the bonds have 15 years to maturity and sell for 117 percent of par. The market risk premium

is 8.6 percent, T-bills are yielding 4 percent, and the company’s tax rate is 40 percent.

a.

What is the firm's market value capital structure? (Do not round interm

ediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Weight

  Debt

  Equity

b.

If the company is evaluating a new investment project that has the same risk as t

he firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Discount rate

 %

Suppose your company needs $18 million to build a new assembly line. Your target debt−equity

ratio is .8. The flotation cost for new equity is 11 percent, but the flotation cost for debt is only 8

percent. Your boss has decided to fund the project by borrowing money because the flotation cost

s are lower and the needed funds are relatively small.

a.

What is your company’s weighted average flotation cost, assuming all equity is raised externally?

(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Flotation cost

 %

b.

What is the true cost of building the new assembly line after taking flotation costs into account?

(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round

intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  Amount raised

$

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