1. The standard deviation of Stock A’s returns is 8%; the standard deviation of Stock B’s returns is 8%. The correlation between the two stocks is zero. The standard deviation of a portfolio made up of equal amounts of A and B is:
2. Jamison, Inc. has an issue of $1,000 par value bonds with a 9% coupon interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm’s bond will sell for approximately today.
3.What is the yield to maturity, to the nearest percent, for the following bond:
Current price = $908.00
Coupon rate = 11%
Par value = $1,000
Time to maturity = 8 years
Interest is paid annually
4.Gordon, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10%, and a required return of 20%. The value of a share of Gordon, Inc.’s common stock is .
5.Assume that the U.S. Treasury bill rate is 3% and that the expected rate of return on the stock market is 7% for the next year. If Dana Corporation has a beta of 1.25, what is the required rate of return for the stock?
7.Stock XYZ has a 0.6 probability of earning a 20% return and 0.4 probability of earning a 5% return. Calculate the expected return for the stock.
8.Kline, Inc. has preferred stock that pays a $3 per share annual dividend in perpetuity (forever). Calculate the price of one of Kline’s shares of stock given a required return of 15%.
9.A bond has an annual coupon payment of $40, 9 years to maturity, a par value of $1,000 and a current price of $800. State if the bond is selling at a discount, a premium, or at par.
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