Please answer all questions in this section. There are a total of 40 marks for this section.

Q1. State whether the following statement is True or False and explain why.

The return on a risk-free asset and the return on any common stock are perfectly negatively correlated.

(10 marks)

Q2. Company X is expected to pay an end-of -year dividend of $5 a share. After the dividend its stock is expected to sell at $110. If the market capitalization rate is 8%, what is the current stock price?

(10 marks)

Q3. State whether the following statement is True or False and explain why.

A bonds price is higher when its fixed rate of coupon is higher.

(10 marks)

Q4. Briefly explain the meaning of (beta) in finance and detail how it is calculated.