1. The market price of a curity is $50. Its expected rate of return is 14%. The risk-free rate is 6% and the market risk premium is 8.5%. What will be the market price of the curity if its correlation coefficient with the market portfolio doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity).
2. You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars):
Years from now | After-Tax cash flows |
0 | -40 |
1-10 很任性歌词 | 15 |
| |
The project’s beta is 1.8. Assuming that 如何去胃火=8% and, what is the net prent value of the project? What is the highest beta estimate for the project before its NPV becomes negative?
3. Consider the following table, which gives a curity analyst’s expected return on two stocks for two particular market returns:
Market return | Aggressive stock | 体罚孩子Defensive Stock |
端康皇贵妃5% | -2% | 6% |
25% | 38% | 12% |
| | |
a) What are the betas of the stocks?
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b) What is the expected rate of return on each stock if the market return is equally likely to be 5% or 25%?
c) If the T-bill rate is 6% and the market return is equally likely to be 5% or 25%, draw the SML for the economy.
d) Plot the two curities on the SML graph. What are the alphas of each?
e) What hurdle rate should be ud by the management of the aggressive firm for a proje
ct with the risk characteristic of the defensive firm’s stock?书香家庭事迹材料
4. Two investment advirs are comparing performance. One averaged a 19% rate of return and the other a 16% rate of return. However, the beta of the first investor was 1.5, whereas that of the cond was 1.黄豆的营养成分
a) Can you tell which investor was a better lector of individual stocks (aside from the issue of general movements in the market)?
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b) If the T-bill rate were 6% and the market return during the period were 14%, which investor would be the superior stock lector?
c) What if the T-bill rate were 3% and the market return were 15%?
