Question: Security A Security B EIR) 12% 13% ? .021 .029 Beta 1.10 1.20 1. Suppose you split your money 50-50 between the two securities shown

Security A Security B

EIR) 12% 13%

? .021 .029

Beta 1.10 1.20

1. Suppose you split your money 50-50 between the two securities shown above:

A. What is the expected Return of the two security portfolio

B. What is the portfolio beta?

2. What is the covariance between Security A and the market?

3. Consider the following information

Stock Price is 46.69, current dividend is 1.98, future dividend growth rate is 5.5%, beta is 1.10, 30 day T bill rate is 2.55%, equity risk premium is 8.2%.

For this stock you want to set a buy limit at 90 percent of the intrinsic value of the stock as determined using the dividend disccount model. What should that price be?

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