Please answer questions 1-5 with subparts. Include formula and solve step by step.

Question 1

A year ago you bought 100 shares of Bradley Corp. common stock for $32 per share. During the year, you received dividends of $2.50 per share. The stock currently sells for $33.50 per share.

(1.1) What was your total dividend income during the year?

(1.2) How much was your capital gain?

(1.3) What was your total dollar return?

(1.4) Compute the dividend yield.

(1.5) Compute the capital gains yield.

(1.6) Compute the total percentage return on a per year basis.

Question 2

Suppose the following information represents possible future returns for ATT stock next year:

State of Economy	Probability of state of economy	Rate of return if state occurs
1	.20	12%
2	.20	6%
3	.20	-10%
4	.20	22%
5	.20	5%
	1.00

(2.1) What is the expected rate of return for ATT common stock?

(2.2) What is the variance of the return for ATT common stock?

State of economy	Rate of return if state occurs R	Deviation of return from expected return R E(R)	Squared deviation of return from expected return (R E(R))2
1	.12	.05	.0025
2	.06	- .01	.0001
3	- .10	- .17	.0289
4	.22	.15	.0225
5	.05	-.02	.0004
Totals	.35	.00	.0544

Question 3

An individual plans to invest in Stock A and/or Stock B. The expected returns are 9% and 10% for A and B, respectively. The betas are 0.95 and 1.25 for Stocks A and B, respectively.

(3.1) Find the expected return for the portfolio if she invests 75% of her funds in stock A.

(3.2) Find the beta for the portfolio if she invests 75% of her funds in Stock A

(3.3) Suppose the investor wants to construct a portfolio with expected return equal to 9.5%.

(3.3a) What are the portfolio weights for this portfolio?

(3.3b) What is the beta for this portfolio?

Question 4

Suppose today is January 1, 2009. On January 1, 1999, MAM Industries issued a 30-year bond with a 9% coupon and a $1,000 face value, payable on January 1, 2029. The bond now sells for $915.

(4.1) Use this bond to determine the firms after-tax cost of debt (Assume a 34% tax rate).

(4.2) Suppose MAM Industries also issued a 30-year bond five years agoit has a $1,000 face value and a 10% coupon

(4.2a) If the bond currently sell for $1,000, what is the after-tax costs of debt capital, as

indicated by the market value of this outstanding bond?

(4.2b) Suppose five years from now the MAM bond described in 4.2a has a market price of $1,100. What is the after-tax cost of debt capital at that time?

Question 5

Use the following information to complete all subsections of this question:

Margo Corporation is a major producer of lawn care products. Its stock currently sells for $80 per share; there are 10.5 million shares outstanding. Margo also has debt outstanding with a book value of $400 million. Margo bonds currently yield 10% and trade at 90% of face value. The risk-free rate is 8%, the market risk premium is 9%, and Margo has beta equal to 2. The corporate tax rate is 34%.

(5.1) Margo is considering expansion of its facilities. Use SML to determine cost of equity.

(5.2) Compute the weighted average cost of capital for Margo.

(5.3) The project under consideration by Margo requires an outlay of $1,000,000 and will produce incremental after-tax cash inflows of $350,000 annually for five years. Compute NPV.