AA Corporations stock has a beta of 8. The risk-free rate is 4.5% and the expected return
Question:
- AA Corporation’s stock has a beta of 8. The risk-free rate is 4.5% and the expected return on the market is 13.6%. What is the required rate of return on AA’s stock?
- The market and Stock J have the following probability distributions:
Probability rM rJ
0.2 12% 16%
0.3 8 7
0.5 20 13
Calculate the expected rates of return for the market and Stock J.
- Suppose you manage a $6 million fund that consists of four stocks with the following investments:
Stock Investment Beta
A $700,000 1.70
B 1,400,000 -0.70
C 1,300,000 1.15
D 2,100,000 0.85
If the market’s required rate of return is 12% and the risk-free rate is 3%, what is the fund’s required rate of return?
- Boehm Incorporated is expected to pay a $2.28 per share dividend at the end of this year
(i.e. D1 = $2.28). The dividend is expected to grow at a constant rate of 10% a year. The required rate of return on the stock, r is 17%. What is the estimated value per share of Boehm’s stock?
- Nick’s Enchiladas Inc. has preferred stock outstanding that pays a dividend of $9.10 at the end of each year. The preferred sells for $70 a share. What is the stock’s required rate of return
- A company currently pays a dividend of $4 per share (D0= $4). It is estimated that the company’s dividend will grow at a rate of 10% per year for the next 2 years, and then at a constant rate of 5% thereafter. The company’s stock has a beta of 1.6, the risk-free rate is 4% and the market risk premium is 2%. What is your estimate of the stock’s current price?
Intermediate Financial Management
ISBN: 978-1285850030
12th edition
Authors: Eugene F. Brigham, Phillip R. Daves