Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $56. The stock will pay a dividend at year-end of $4.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.9%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2013 (figures in percent per year) are as follows. Portfolio Avg Annual Rate Average Premium (extra return of Return versus treasury bills) Treasury bills 3.9 Treasury 5.2 Bonds Common Stocks 11.5 1.3 7.6 What is the discount rate if the interest rate is 4.0% ? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate 6=? What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price $ =?

Top hedge fund manager Diana Sauros believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $56. The stock will pay a dividend at year-end of $4.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.9%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2013 (figures in percent per year) are as follows. Portfolio Avg Annual Rate Average Premium (extra return of Return versus treasury bills) Treasury bills 3.9 Treasury 5.2 Bonds Common Stocks 11.5 1.3 7.6 What is the discount rate if the interest rate is 4.0% ? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate 6=? What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price $ =?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You have funds invested in a mutual fund of S&P 500 stocks. Over the last 5 years, the annual percent returns of the S&P 500 are 19.58%, −6.30%, 28.94%, 16.32%, and 14.55%. What is the average annual percent return on the S&P 500 stocks over the last 5 years? The average annual percent return?? (the answer is not 14.62%)
You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. Year Beginning of Year Price # of Shares Bought or Sold 2016 $ 50.00 100 bought 2017 $ 55.00 50 bought 2018 $ 51.00 75 sold 2019 $ 54.00 75 sold What is the dollar-weighted return over the entire time period? Multiple Choice 0.74% 2.87% 2.6% 2.21%
May I have the step by step calculations for the following: Linke Motors has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 13.00%. Based on the SML, what is the firm's required return?
Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $42. The stock will pay a dividend at year-end of $4.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.7%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2017 (figures in percent per year) are as follows. Portfolio Average AnnualRate of Return (%) Average Premium (Extra returnversus Treasury bills) (%) Treasury bills 3.8 Treasury bonds 5.3 1.5 Common stocks 11.5 7.7 a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) b. What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The stock of Verdoni, Inc., has a beta of 1.28. The risk-free rate of return is 2.62 percent, the inflation rate is 2.1 percent, and the expected market rate of return is 9.3 percent. What is the expected return on Verdoni’s stock?
3. Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF), the risk-free rate (7.00%), and the required return on the United Fund (15.00%) are shown below. Based on this information, what is the required return on the market, ? Year 2011 2012 2013 2014 2015 Market -9% 11% 15% 5% -1% UF -14% 16% 22% 7% -2%
Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $50. The stock will pay a dividend at year-end of $2. Assume that risk-free Treasury securities currently offer an interest rate of 2%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2017 (figures in percent per year) are as follows. Average Premium (Extra return veraus Treasury bills) () Average Annual Rate of Return Portfolio Treasury billa Treasury bonda Common atocks (%) 3.8 5.3 11.5 1.5 7.7 a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate % Prev 1 of 5 Next > search
You are given the following information concerning several mutual funds: Fund Return in Excess of the Treasury Bill Rate Beta A 12.4% 1.14 B 13.2% 1.22 C 11.4% 0.90 D 9.8% 0.76 E 12.6% 0.95 During the time period, the Standard & Poor's stock index exceeded the Treasury bill rate by 10.5 percent (i.e., r(m) - r(f) = 10.5%) a. Rank the performance of each fund without adjusting for risk and adjusting for risk using the Treynor index. Which, if any, outperformed the market? (Remember, the beta of the market is 1.0.) b. The analysis in part (a) assumes each fund is sufficiently diversified so that the appropriate measure of risk is the beta coefficient. Suppose,…
You have been asked to calculate the required return for a stock that you are considering investing in. You recently looked up the risk-free rate (as measured by Treasury bonds) and found it to be 1%. You also looked up the current market return of the S&P 500 and found it to be 12. If the firm has a beta of 1.2, what is its required return?
You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. Year Beginning of Year Price # of Shares Bought or Sold 2014 $ 100 bought 2015 $ 50 bought 2016 $ 75 sold 2017 $ 75 sold What is the dollar-weighted return over the entire time period? O 2.6% 2.21% O .74% 2.87% 50.00 55.00 51.00 54.00
Question: A stock that currently trades at $10 has a beta of 1.1. The risk-free interest rate for the coming year is 3 percent, and the market price of risk is 7 percent. (a) What should the expected return on the stock be? (b) If the stock price is not expected to increase this year (i.e., the stock price is expected to remain unchanged), what dividend payments must investors be expecting for the coming year? (c) Now assume that dividends over the coming year are expected to be $0.25 per share and the stock price at the end of this year is expected to be $12. Would you recommend the purchase of this stock to your investment clients? [Show your calculations and explain fully.]
Please explain using Excel and show/explain formulas. Percival Hygiene has $10 million invested in long-term corporate bonds. This bond portfolio’s expected annual rate of return is 8%, and the annual standard deviation is 10%. Amanda Reckonwith, Percival’s financial adviser, recommends that Percival consider investing in an index fund that closely tracks the Standard & Poor’s 500 index. The index has an expected return of 13%, and its standard deviation is 14%. a. Suppose Percival puts all his money in a combination of the index fund and Treasury bills. Can he thereby improve his expected rate of return without changing the risk of his portfolio? The Treasury bill yield is 3%. multiple choice Yes No b. Could Percival do even better by investing equal amounts in the corporate bond portfolio and the index fund? The correlation between the bond portfolio and the index fund is +0.3. multiple choice Yes No

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