Question

SHOW WORK

3-A company just pay dividend od Do=$2.00 for its stock. Company’s dividend is expected to grow by 40% in the first year, by 35% in year 2, by 12% in year 3 and a constant rate of 3% in year 4and thereafter. The required return on this stock is 8%. What is the stock current value?

A 82.35

B 73.72
C 78.43
D 85.49

E 74.51

4-There are two stocks you are considering to buy. Stock A and B. Stock A has a beta of 0.8 and stock B has a beta of 3.1 Treasury-bills have return of 3% and the market portfolio has a return of 11%. Compared to the less risky stock, the riskier stock has:

A 18.4% lower expected return

B 17.7% higher expected return

C 16.7% higher expected return

D 18.4% higher expected return

E 16.7% lower expected return

5-The beta of Citadelof inc. stock if 0.80, whereas the risk-free rate of return is 7.50%. if the expected market portfolio return is 11%, then what is the expected return on citadelof based on the CAPM?

A 9.48%

B 10.30%

C 11.02%

D 16.30%

E 9.58%

Answer 1

3)

4)usinf capm model
Return=Risk free+(beta*(market return-riskfree))
stock A=3%+(0.8*(11%-3%))=9.40%
stock B=3%+(3.1*(11%-3%))=27.80%
Excess=27.8%-9.4%=18.4%
option D
5)usinf capm model
Return=Risk free+(beta*(market return-riskfree))
=7.5%+(0.8*(11%-7.5%))
=10.30%
It is option B