CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196239
Author: Bodie
Publisher: MCG
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Chapter 7, Problem 2CP
Kay, a portfolio n1anacr at Collins Asset v1anagemenr, is using the
Forecasted Returns, Standard Deviations, and Betas Forecasted Return Standard Deviation Beta Stock X 14.0% 36% 0.8 Stock Y 17.0 25 15 Market index 4 0 1 5 1.0 Risk-free, rate 5.0
a. Calculate expected return and alpha for each stock.
b. Identify and justify which stock would be more appropriate for an investor who wants to:
i. Add this stock lo a well-diversified equity portfolio.
ii. Hold this stock as a single-stock portfolio.
Et
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A company currently pays a dividend of $3.6 per share (D0 = $3.6). It is estimated that the company's dividend will grow at a rate of 19% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 8.5%, and the market risk premium is 4.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
Chapter 7 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
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