FINC 330 FINC330 Homework 5 Solution
Question 1
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UPS preferred stock pays $5 in annual dividends. If your required rate of return is 11.56 percent, how much would you be willing to pay for one share of this preferred stock?
Question 2
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Giant Co. has just issued preferred stock with a par value of $100 and an annual dividend rate of 9.80 percent. If your required rate of return is 7.11 percent, how much will you be willing to pay for one share of this preferred stock?
Question 3
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Golden Rod Corp.’s preferred stock is currently selling for $32.79. The company pays $6.80 annual dividends on this preferred stock. Which rate of return does the investor expect to receive on this stock if the stock is purchased today?
Question 4
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Potter’s Violin Co. has just issued nonconvertible preferred stock with a par value of $100 and an annual dividend rate of 11.63 percent. The preferred stock is currently selling for $140.18 per share. Which rate of return does the investor expect to receive on this stock if the stock is purchased today?
Question 1
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The last dividend of Delta, Inc. was $10.90, the growth rate of dividends is expected to be 4.46 percent, and the required rate of return on this stock is 8.38 percent. What is the stock price according to the constant growth dividend model?
Question 2
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The next year the common stock of Gold Corp. will pay a dividend of $2.63 per share. If the company is growing at a rate of 3.51 percent per year, and your required rate of return is 11.94 percent, what is Gold’s company stock worth to you?
Question 3
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The Black Forest Cake Company just paid an annual dividend of $7.25. If you expect a constant growth rate of 3.06 percent, and have a required rate of return of 12.19 percent, what is the current stock price according to the constant growth dividend model?
Question 4
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You are considering the purchase of a share of Alfa Growth, Inc. common stock. You expect to sell it at the end of one year for $99.51 per share. You will also receive a dividend of $4.99 per share at the end of the next year. If your required return on this stock is 8.23 percent, what is the most you would be willing to pay for Alfa Growth, Inc. common stock now?
Question 5
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Green Company’s common stock is currently selling for $82.09 per share. Last year, the company paid dividends of $3.31 per share. The projected growth at a rate of dividends for this stock is 4.65 percent. Which rate of return does the investor expect to receive on this stock if it is purchased today?
Question 6
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Digging Deep Company’s common stock is currently selling for $181.91 per share. Next year, the company dividend is expected to be $5.87 per share. The projected growth at a rate of dividends for this stock is 3.86 percent per year. What rate of return does the investor expect to receive on this stock if he or she purchases the stock today?
Question 1
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King Farm Manufacturing Company’s common stock has a beta of 1.74. If the risk-free rate is 3.15 percent, and the market return is 5.59 percent, calculate the required return on King Farm Manufacturing’s common stock.
Question 2
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Try to determine the required rate of return on Tilden Woods Corporation’s common stock. The firm’s beta is 1.53. The rate on a 10-year Treasury bond is 2.59 percent, and the market risk premium is 7.25 percent.
Question 3
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You hold a portfolio with the following securities:
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Security
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Percent of portfolio
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Beta
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Stock A
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48%
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0,6
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Stock B
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17%
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1,6
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Stock C
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35%
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1,07
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Calculate the beta portfolio.
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Round the answers to two decimal places.
Question 4
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John invested the following amounts in three stocks:
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Security
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Investment
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Beta
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Stock A
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$239 551
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0,7
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Stock B
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$164 832
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1,9
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Stock C
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$868 032
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0,92
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Calculate the beta portfolio.
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Round the answers to two decimal places.
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Question 5
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Jack holds a portfolio with the following securities:
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Security
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Investment
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Return
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Stock A
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$476 006
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18,9%
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Stock B
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$139 630
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5,0%
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Stock C
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$737 771
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9,1%
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Calculate the expected return of portfolio.
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Round the answers to two decimal places in percentage form.
Question 6
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You hold a portfolio with the following securities:
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Security
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Percent of portfolio
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Return
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Stock A
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60%
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-2,2%
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Stock B
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18%
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11,1%
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Stock C
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22%
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7,5%
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Calculate the expected return of portfolio.
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Round the answers to two decimal places in percentage form.
Question 1
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Calculate the expected return on stock of Gamma Inc.:
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State
of the economy
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Probability
of the states
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Percentage
returns
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Economic recession
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29%
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-4,0%
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Steady economic growth
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43%
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5,2%
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Boom
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28%
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14,0%
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 2
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Calculate the expected standard deviation on stock:
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State
of the economy
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Probability
of the states
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Percentage
returns
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ROS
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Economic recession
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21%
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2%
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Steady economic growth
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25%
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6%
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Boom
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54%
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14%
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 1
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The prices for the White Swan Corporation for the first quarter of the last year are given below. Find the holding period return (percentage return) for February.
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End of the month
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Stock price
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January
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103,39
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February
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90,7
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March
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106,08
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 2
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You purchased 100 shares of General Motors stock at a price of $98.99 one year ago. You sold all stocks today for $102.76. During the year, the stock paid dividends of $5.79 per share. What is your holding period return?
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 3
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Sarah purchased 100 shares of General Electric stock at a price of $53.67 three months ago. She sold all stocks today for $67.53. During the year the stock paid dividends of $4.52 per share. What is Sarah’s holding period return
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 4
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You purchased 250 shares of General Motors stock at a price of $82.03 two years ago. You sold all stocks today for $78.14. During this period the stock paid dividends of $5.70 per share. What is your annualized holding period return (annual percentage rate)?
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 5
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You purchased 300 shares of General Electric stock at a price of $61.56 four years ago. You sold all stocks today for $69.92. During that period the stock paid dividends of $3.91 per share. What is your annualized holding period return (annual percentage rate)?
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 6
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John purchased 100 shares of Black Forest Inc. stock at a price of $155.95 three months ago. He sold all stocks today for $160.90. During this period the stock paid dividends of $6.19 per share. What is John’s annualized holding period return (annual percentage rate)?
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 7
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Mary purchased 100 shares of Sweet Pea Co. stock at a price of $49.42 six months ago. She sold all stocks today for $47.55. During that period the stock paid dividends of $1.40 per share. What is Mary’s effective annual rate?
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
Question 8
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Tom purchased 100 shares of Dalia Co. stock of at a price of $129.49 four months ago. He sold all stocks today for $125.12. During the year the stock paid dividends of $5.80 per share. What is Tom’s effective annual rate?
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Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)
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