61.
The Nasdaq stock market bubble peaked at 10,816 in 2000. Two and a half years later it
had fallen to 4,000. What was the percentage decline?
62.
Paccar’s current stock price is $75.10 and it is likely to pay a $3.29 dividend next year.
Since analysts estimate Paccar will have a 14.2 percent growth rate, what is its required
return?
63.
Universal Forest’s current stock price is $154.00 and it is likely to pay a $5.23 dividend
next year. Since analysts estimate Universal Forest will have a 13.0 percent growth rate,
what is its required return?
64.
A manager believes his firm will earn an 18 percent return next year. His firm has a beta of
1.75, the expected return on the market is 13 percent, and the risk-free rate is 5 percent.
Compute the return the firm should earn given its level of risk and determine whether the
manager is saying the firm is under-valued or over-valued.
65.
You own $9,000 of Olympic Steel stock that has a beta of 2.5. You also own $7,000 of
Rent-a-Center (beta = 1.2) and $8,000 of Lincoln Educational (beta = 0.4). What is the
beta of your portfolio?
66.
Compute the expected return and standard deviation given these four economic states,
their likelihoods, and the potential returns:
67.
You own $10,000 of Denny’s Corp. stock that has a beta of 3.2. You also own $15,000 of
Qwest Communications (beta = 1.9) and $15,000 of Southwest Airlines (beta = 0.4).
Assume that the market return will be 13 percent and the risk-free rate is 5.5 percent.
What is the risk premium of the portfolio?
68.
You hold the positions in the following table. What is the beta of your portfolio? If you
expect the market to earn 12 percent and the risk-free rate is 3.5 percent, what is the
required return of the portfolio?
69.
You hold the positions in the following table. What is the beta of your portfolio? If you
expect the market to earn 10 percent and the risk-free rate is 4 percent, what is the
required return of the portfolio?
70.
Praxair’s upcoming dividend is expected to be $2.25 and its stock is selling at $65. The
firm has a beta of 0.8 and is expected to grow at 10 percent for the foreseeable future.
Compute Praxair’s required return using both CAPM and the constant growth model.
Assume that the market portfolio will earn 10 percent and the risk-free rate is 3 percent.
71.
Estee Lauder’s upcoming dividend is expected to be $0.65 and its stock is selling at $45.
The firm has a beta of 1.1 and is expected to grow at 10 percent for the foreseeable future.
Compute Estee Lauder’s required return using both CAPM and the constant growth model.
Assume that the market portfolio will earn 11 percent and the risk-free rate is 4 percent.
72.
ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent
rate for the next seven years. What is ABC’s required return?
73.
U.S. Bancorp holds a press conference to announce a positive news event that was
unexpected to the market. As soon as the announcement is made, the stock price
increases $8 per share but then over the next hour the price continues to increase
resulting in a total increase of $11. Given this information which of the following
statements is correct?
74.
U.S. Bancorp holds a press conference to announce a positive news event that was
unexpected to the market. As soon as the announcement is made, the stock price
increases $8 per share but then over the next hour the price falls resulting in a net
increase of only $4. Given this information which of the following statements is correct?
75.
Which of the following is incorrect?
76.
Which of the following is correct?
77.
Which of the following statements is incorrect?
78.
Stock A has a required return of 19 percent. Stock B has a required return of 11 percent.
Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement
about the two stocks?
79.
Stock A has a required return of 19 percent. Stock B has a required return of 11 percent.
Assume a risk-free rate of 4.75 percent. By how much does Stock A’s risk premium exceed
the risk premium of Stock B?
80.
Stock A has a required return of 12 percent. Stock B has a required return of 15 percent.
Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement
about the two stocks?
81.
IBM’s stock price is $22, it is expected to pay a $2 dividend, and analysts expect the firm
to grow at 10 percent per year for the next five years. TDI’s stock price is $10, it is
expected to pay a $1 dividend, and analysts expect the firm to grow at 12 percent per year
for the next five years. What is the difference in the two firms’ required rate of returns?
82.
Which of the following statements is correct?
83.
IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following
statements must be correct?
84.
You hold a diversified portfolio consisting of $1,000 investment in each of 10 different
stocks. The portfolio has a beta of 0.8. You have decided to sell one of your stocks that
has a beta equal to 1.1 for $1,000. You will purchase $1,000 of a new stock with a beta of
2.5. After these two transactions (sell and buy), what will be the beta of the new
portfolio?