Question 1 Quality Recycling Products Inc expects to

Question 1 - Quality Recycling Products, Inc. expects to pay a $2. 15 dividend next period. The firm’s dividends have been increasing at a 6 percent annual rate and are expected to continue at this rate. What is the most you are willing to pay for this stock if your required rate of return is 11 percent?

Question 2 – Axiom Metrics, Inc. paid a $3. 00 dividend this year. The firm expects dividends to increase each year by 5 percent. Investors require a 12 percent return to invest in this stock. What is the intrinsic value of this stock?

Question 3 – Zenith Cassette Decks paid a $2. 00 dividend last period. Due to lagging sales, the firm’s dividends have been reduced each year by 4 percent. This trend is expected to continue. What is the most you are willing to pay for this stock if your required rate of return is 10 percent?

Question 4 – Lacewell Hunting Products paid the following dividends over the last five periods: $1. 00, $1. 03, $1. 09, $1. 10, $1. 17. Dividends are expected to grow in the future at the same compound rate. The required rate of return on this stock is 11 percent. What is the value of this stock according to the dividend discount model?

Question 5 – Eaton Custom Guitars expects to pay a $3. 00 next year. The new dividend will reflect the firm’s commitment to continue increasing dividends each year by 5 percent. The return on the market is 10 percent while the expected return on 90 -day Treasury bills is 4 percent. The firm’s beta is 1. 15. Determine the intrinsic value of this stock?

Question 6 – The common stock of Dietz Diametrics is currently selling for $55. The firm recently paid a $3. 00 dividend. Analysts forecast that the dividends will continue to grow at the historic 6 percent level far into the future. If you buy Dietz stock today, what is the expected rate of return?

Question 7 – Farrell Technics common stock is currently selling for $80 per share. The firm expects to pay a dividend next period of $2. 75. The growth rate in dividends is expected to continue at its long-run rate of 5. 5 percent. If you buy Farrell Technics stock today, what is the expected dividend yield?

Question 8 – Stock j has a standard deviation of 11 percent and stock k has a standard deviation of 20 percent. The correlation between the returns of these two assets is 0. 62. Calculate the covariance of stocks j and k.

Question 9 – The covariance between XYZ stock and JKL stock is -98. 80. The standard deviation of XYZ stock returns is 13 percent. The standard deviation of stock JKL returns is 19 percent. What is the correlation between the returns of these two stocks?

Question 10 – Calculate the standard deviation of a two-asset portfolio that consists of the following: Asset % St. Deviation Correlation (A and B) = 0. 33 A 20 18 % B 80 12 %

Question 11 – Same portfolio as before, but now assume that the correlation between Assets A and B is +1. 0. Calculate the standard deviation. Asset % St. Deviation Correlation (AB) = +1. 0 A 20 18 % B 80 12 %

Question 12 – Calculate the standard deviation of a two-asset portfolio that consists of the following: Asset % St. Deviation Covariance (C and D) = 0. 0117 C 30 11 % D 70 19 %

Question 13 – Calculate the standard deviation of a two-asset portfolio that consists of the following: Asset Value St. Deviation Correlation (E and F) = -0. 16 E $2, 000 18 % F $3, 000 12 %

Question 14 – The standard deviation of the market is 9 percent. The correlation of stock j with the market is 0. 80. Stock j has a standard deviation equal to 11 percent. Calculate the beta of stock j.

Question 15 – The variance of the market is 0. 0064. The correlation of stock d with the market is 0. 75. Stock d has a standard deviation equal to 13 percent. Calculate the beta of stock d.

Question 16 – Given the following historical returns, calculate the sample standard deviation. Year Return (%) 2002 2003 2004 2005 4 17 12 11

Question 17 – Given the following historical returns for Assets X and Y, determine which asset is riskier. Asset X Asset Y 9% 14% 6% 4% 11% 6% 18%

Question 18 – Given the following historical returns, calculate the population standard deviation. Year Return (%) 2002 2003 2004 2005 4 17 12 11

Question 19 – Johnson, Inc. bonds have a $1, 000 par value. The bonds have a 5. 5% annual coupon and carry a conversion price of $50 per share. Johnson, Inc. common stock closed today at $52 per share. Calculate the conversion value of the convertible bonds.

Question 20 – Davenport Docks has $10 million of $1, 000 per value convertible bonds outstanding. The bonds carry a 6% annual coupon rate. The bond indenture states that the bondholder may exchange the bonds for 25 share of common stock. As of closing today, the conversion value of the bonds is $1150. Calculate both the conversion price and the market price of the stock.

Question 21 – Assume the Treasury bills are generating a return of 5 percent. The return on the Wilshire 5000 is 12 percent. Knish Satellite Systems, Inc. (KSSI) returns are 20 percent less volatile than the market. Calculate the required rate of return on KSSI stock.

Question 22 – The stock market is expected to generate an 11 percent return. The standard deviation of the market returns is 15 percent. Nelson Hydro Products returns are consistently 20 percent more volatile than the market. If the risk free rate is 4 percent, what is the required rate of return.

Question 23 – Bagwell Bats, Inc. has a beta of 1. 15. The market risk premium is 7 percent. The risk free rate of return is 4 percent. What is the required rate of return. What is the risk premium on Bagwell Bats, Inc. common stock?

Question 24 – The market risk premium is 8 percent. The risk free rate of return is 5 percent. Draw the SML. Show the impact on the SML if the market risk premium decreases to 7 percent.

Question 25 – Granite Mutual Fund earned 9. 5 percent last year. The fund had a standard deviation of 10 percent, and a beta equal to. 93 (r 2 =. 55). Over the same period, the S&P 500 generated an 11 percent return with a standard deviation of 14 percent. The return on Treasury bills was 4 percent. Calculate the Sharpe ratios for both Granite Mutual Fund and for the S&P 500.

Question 26 – Granite Mutual Fund earned 9. 5 percent last year. The fund had a standard deviation of 10 percent, and a beta equal to. 93 (r 2 =. 55). Over the same period, the S&P 500 generated an 11 percent return with a standard deviation of 14 percent. The return on Treasury bills was 4 percent. Calculate the Treynor ratios for both Granite Mutual Fund and for the S&P 500.

Question 27 – Granite Mutual Fund earned 9. 5 percent last year. The fund had a standard deviation of 10 percent, and a beta equal to. 93 (r 2 =. 55). Over the same period, the S&P 500 generated an 11 percent return with a standard deviation of 14 percent. The return on Treasury bills was 4 percent. Calculate the alpha for the Granite Mutual Fund.

Question 28 – York Industries has an outstanding bond issue with the following characteristics: $1000 Par, 8% coupon rate (paid annually), 20 years to maturity. The bond is priced to yield 11%. Calculate the duration of this bond.

Question 29 – Hudson Agriculture Products has an outstanding bond issue with the following characteristics: $1000 Par, 6% coupon rate (paid semi-annually), 11 years to maturity. The bond is priced to yield 8%. Calculate the duration of this bond.

Question 30 – York Industries has an outstanding bond issue with the following characteristics: $1000 Par, 8% coupon rate (paid annually), 20 years to maturity. The bond is priced to yield 11%. The duration of this bond is 9. 33 years. Use modified duration to estimate the percentage price change if the yield increases to 12%.

Question 31 – Consider another example in which the interest rate falls. Springstube Sockets bonds are selling for $980. The bonds have a duration equal to 7. 5 years. The bonds are priced to yield 5 percent. Assume that the interest rate decreases by 50 basis points. What is the estimated value of the bond?