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4 4. (P8-7) Portfolio required return Suppose you are the money manager of a $4 million investment fund. The fund consists of 4 stocks with the

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4 4. (P8-7) Portfolio required return Suppose you are the money manager of a $4 million investment fund. The fund consists of 4 stocks with the following investments and betas: Stock Investment A $ 400,000 B 600,000 C 1,000,000 D 2,000,000 If the market's required rate of return is 14 percent and the risk-free rate is 6 percent, what is the fund's required rate of return? 5. (P9-1) DPS Calculation Warr Corporation just paid a dividend of $1.50 a share (that is, D o = $1.50). The dividend is expected to grow 7 percent a year for the next 3 years and then at 5 percent a year thereafter. What is the expected dividend per share for each of the next 5 years? 6. (P9-3) Constant growth valuation Harrison Clothiers' stock currently sells for $20 a share. It just paid a dividend of $1.00 a share (that is, D o =$1.00). The dividend is expected to grow at a constant rate of 6 percent a year. What stock price is expected 1 year from now? What is the required rate of return? 7. (P9-9) Preferred stock returns Bruner Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2, and its current price is $80. a. What is its nominal annual rate of return? b. What is its effective annual rate of return?
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This question was asked on May 27, 2010.

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