e120 Practice Final_sum08 - E120 Principles of Engineering...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
E120 Principles of Engineering Economics Summer 2008 Practice Final Problem 1 You believe that one month from now the XYZ Company will pay a dividend of $2 on its common stock. Thereafter you expect to receive dividends every quarter . The dividends are expected to grow at a rate of 1% per quarter in perpetuity. If you require an effective rate of return of 12% per year on your investment, how much should you be prepared to pay for the stock now? Explain. Problem 2 In 1999 the risk free interest rate is 5%. Suppose the expected rate of return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model: a) What’s the expected rate of return on the market portfolio? b) What would be the expected rate of return on a stock with β =0? c) Suppose you consider buying a share of stock at $40. The stock is expected to pay $3 dividends next year and you expect it to sell then for $41. The stock risk has been evaluated at β =0.5. Is the stock overpriced or under priced? Problem 3
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/30/2008 for the course ENGIN 120 taught by Professor Ilan during the Summer '08 term at University of California, Berkeley.

Page1 / 2

e120 Practice Final_sum08 - E120 Principles of Engineering...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online