1.
| Six months ago, you purchased 1,800 shares of ABC stock for $38.06 a share. You have received dividend payments equal to $0.60 a share. Today, you sold all of your shares for $40.34 a share. What is your total dollar return on this investment? |
$6,840
$5,184
$4,104
$1,080
$10,368
2.
| You own a stock portfolio invested 20 percent in Stock Q, 20 percent in Stock R, 20 percent in Stock S, and 40 percent in Stock T. The betas for these four stocks are 0.9, 0.84, 1.39, and 1.72, respectively. What is the portfolio beta? |
1.25
1.31
1.34
1.38
1.29
3.
| The Bet-r-Bilt Company has a 5-year bond outstanding with a 4.05 percent coupon. Interest payments are paid semi-annually. The face amount of the bond is $1,000. This bond is currently selling for 97 percent of its face value. What is the company’s pre-tax cost of debt? |
4.7 percent
2.5 percent
4.1 percent
8.2 percent
9.8 percent
4.
| A stock has a beta of 1.5, the expected return on the market is 10 percent, and the risk-free rate is 4 percent. What must the expected return on this stock be? |
19%
13%
13.65%
13.52%
12.35%
1
total dollar return on this investment
=(403.34-38.06)*1800 +0.60*1800
=4104+1080
=$ 5184
2
beta of a portfolio=1.31
The beta of a portfolio is the sum of the weight of each asset times the beta o feach asset. So, the beta of the portfolio is
=0.20* 0.9+0.20* 0.84+0.20* 1.39 +0.40*1.72
=1.31
3
The pretax cost of debt is the YTM of the company’s bonds,
so:
P0= $970 = $20.25(PVIFAR%,10) + $1,000(PVIFR%,10)
R = 2.37%
YTM = 2 × 2.35%
= 4.7%
4
K = RF +B(Rm-Rf)
K =4% +1.5 (10-4)
K =4% +1.5(6%)
k=4% +9%
K=13%
