1. Last year a firms net income after tax was $7.5 million and at the end of last year the firms common stock price per share was $39.9 and number of common shares outstanding was 1.1 million. What was the firms price to earnings (PE) ratio last year?
2. Which of the following statements is true regarding these stocks given the following attributes?:
Stock A has a beta of 1.2
Stock B has a beta of 0.4
a. As an investor, you would demand a higher rate of return for stock A than you would for stock B.
b. You are currently invested in a random stock (call it stock C). Adding stock A to stock C will reduce portfolio risk more than the addition of stock B to stock C.
c. Adding stock B would make the portfolio riskless give how stock B runs a slightly negative correlation to stock C.
d. None of the answers apply, as we cannot solve this question without stock A or B's standard deviation.