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IF Study Questions for Risk &amp; Return and Portfolio Theory

# IF Study Questions for Risk & Return and Portfolio Theory

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BUSFIN 1030 – Introduction to Finance Study Questions for Risk & Return and Portfolio Theory 1. A company has just paid a dividend in the amount of \$4 per share. The dividends are expected to grow 15% annually forever. Currently, investors require 20% return on company’s equity; however, the required return is expected to decrease to 17% in one year. What is the expected dollar return of this company’s stock over the next year? 2. A company is planning to issue a 20-year bond with \$10,000 face value and 10% coupon rate with annual coupon payments at 9% yield-to-maturity now. What is the expected percentage return of this bond over the next year if yield-to-maturity is expected to be 10% in one year? 3. Suppose you bought a share of Lockheed Martin at the opening price of \$107.27 a share on Tuesday, May 27, 2008. You sold the stock on Friday, June 6, 2008 at the closing price of \$103.75 a share. The company paid out \$0.42 per-share regular dividend on Thursday, May 29, 2008. a. Ignoring transaction costs what was the 11-day HPR of this investment? b. What would be the APR and the EAR of this investment? (Assume that a year is 363 days.) 4. Suppose you bought a share of Boeing at the opening price of \$62.08 a share on Monday, August 4, 2008. You sold the stock on Monday, August 18, 2008 at the closing price of \$63.64 a share. The company paid out \$0.40 per-share regular dividend on Wednesday, August 6, 2008. a. Ignoring transaction costs what was the 15-day HPR of this investment? b. What was the APR and the EAR of this investment? (Assume that a year is 360 days.) 5. The following table displays General Motors Corp.’s stock returns and the returns of U.S. long-term government bonds during World War II. Use the information therein to answer

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