have a portfolio of two risky stocks which turns out to have no
diversification benefit. The reason you have no diversification is the
move perfectly with one another.
are too small.
move perfectly opposite of one another.
are completely unrelated to one another.
are too large to offset.
is the stock split data for ABC Company:
2 for 1
6 for 2
1.5 for 1
3 for 1
If you bought 2,655 shares in the beginning of 1990 and
during the period of 10 years never bought or sold additional shares, how many
shares would you have by the end of 1999?
stock just paid a dividend of D0 = $1.2. The required
rate of return is rs = 19.9%, and the constant growth rate is g
= 3.8%. What is the current stock price?
Co. has $1,000 face value stock outstanding with a market price of
$1,003.7. The stock pays interest annually, matures in 18 years, and
has a yield to maturity of 10 percent. What is the annual coupon amount?
bond that sells for less than face value is called as:
par value bond
ABC Company has a cost of equity of 12.6 percent, a pre-tax cost of
debt of 5.3 percent, and a tax rate of 38 percent. What is the
firms weighted average cost of capital if the weight of debt is 67
spot rate for the pound is 0.676 = $1 and the spot rate for the Canadian
dollar is C$1.2012 = $1. What is the /C$ cross rate?
principal amount of a bond that is repaid at the end of term is called the
par value or the:
companys market value of common stock is $200 million, preferred stock is
$300 million, and debt is $500 million. Suppose that the cost of equity is
7%, the before-tax cost of debt is 4.6%, cost of preferred stock is 6.8%,
and the tax rate is 27%.
Compute the WACC.
would like to create a portfolio that is equally invested in a risk-free
asset and two stocks. One stock has a beta of 1.83. What does the beta of
the second stock have to be if you want the portfolio to have a beta of
the exchange rate is $1.594 per euro. If the euro appreciates by 24%
against the dollar, how many euros would a dollar buy tomorrow?
beta of the risk-free asset is:
want to create a portfolio as risky as the market. Suppose you invest your
money in Stocks A, B, C, and the risk-free asset. What is the weight of
Stock C in your portfolio?
B 17 0.3
Rf ? ?
the nominal rate is 19% and the inflation rate is 3.8%. Solve for the real
Use the Fisher Equation to get your answer.
that today’s stock price is $36.5. If the required rate on equity is 18.7%
and the growth rate is 5.2%, compute the expected dividend (i.e.
last dividend paid was $4.66, its required return is 24%,
its growth rate is 5%. What is ABC’s expected stock price
in 7 years?
the market value of debt is $46,889, market value of preferred stock is
$61,827, and market value of common equity is 28,327, what is the weight
of preferred stock?
have observed the following returns on ABC’s stocks over the last six
8.8%, 19.4%, 8.8%, -8.1%, 6.6%, -13.2%
What is the geometric average returns on the stock over
this six-year period.
on the following data, calculate the returns for June 2014
year ago, you puchased 74 shares of ABC stock for $21.6 per share. During
the year, you received a dividend of $2.6 per share. Today, you sold
all your shares for $28.7. What are the percentage return on your
common stock of ABC Industries is valued at $34.8 a share. The company
increases their dividend by 4.4 percent annually and expects their
next dividend to be $2.79. What is the required rate of return on this
last dividend was $1.7. The dividend growth rate is expected to be
constant at 9% for 3 years, after which dividends are expected to
grow at a rate of 4% forever. The firm’s required return (rs)
is 17%. What is its current stock price (i.e. solve for Po)?
risk-free rate is 4.4%, the market risk premium is 7.5%, and the stocks
beta is 0.66. What is the cost of common stock?
Inc. has 6 percent bonds outstanding that mature in 13 years. The bonds
pay interest semiannually and have a face value of $1,000. Currently, the
bonds are selling for $993 each. What is the firm’s after-tax cost of debt
if the tax rate is 21%?
investor puts $40,000 in a risk-free asset and $20,000 in the market
portfolio. Compute the beta of his portfolio.
the coupon rate is less than the yield to maturity, the bond will:
sell at a discount
sell at a premium
sell at par
are planning a trip to London and plan on spending 7,806 pounds. How many
dollars will this trip cost you in dollars if one U.S. dollar is worth