Problem $8-02$

The Clipper Salboat Company is expected to earn $$3$ per share next year. The company will have a return on equity of $16$ percent and the company will $5$

percent in the future. The company has a cost of equity of $13$ percent. Given that information, answer the following questions.

a$.$ What is the value of the company's stock? Do not round intermediate calculations. Round your answer to the nearest cent.

$

b$.$ What is the present value of the growth opportunity? Do not round intermediate calculations. Round your answer to the nearest cent.

$

c$.$ Assume that the growth rate is only $4$ percent. What would the appropriate P$/$E multiple be for this stock? Do not round intermediate calculations.

Round your answer to two decimal places.

Problem $6-03$

The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six$-$month period.

Compute the following. Do not round intermediate calculations. Round your answers to four decimal places.

a$.$ Average monthly rate of return, $\frac{?}{\text{b}\text{a}\text{r}}(R{)}_i,$ for each stock

Madison Cookies:

Sophie Electric:

b$.$ Standard deviation of returns for each stock

Madison Cookies:

Sophie Electric:

c$.$ Covariance between the rates of return

Cov ${?}_{ij}$ :

d$.$ The correlation coefficient between the rates of return

$r_{ij}$:

Would these two stocks be good choices for diversification? Why or why not?

Madison Cookies and Sophie Electric are

choices for diversification as these assets have

correlation