1) Asset P has the beta of= 0.9. The risk-free rate of return is= 8%, while return on market portfolio of assets is= 14%. The asset's required rate of return is?
2) Firm has issued cumulative favoured stock with $100 dollar par value and 12% annual dividend. For past 2 years, board of directors has decided not to pay dividend. Favoured stockholders should be paid________________ prior to paying common stockholders.
3) Tangshan China stock is presently selling for $160 per share and firm's dividends are expected to increase at 5% indefinitely. Additionally, Tangshan China's most current dividend was= 5.50. Expected risk free rate of return is= 3 %, the expected market return is= 8%, and Tangshan has a beta of 1.20.
i) What is the expected return based on the dividend return model?
ii) What is the required return based upon capm
iii) Would Tangshan China be a good investment at this time? Explain?
4) Mia's Doll Company has the outstanding favoured issue of stock with par value of= $100 and annual dividend of 10%(of par). Similar Risk favoured stocks are yielding 11.5% annual rate of return.
i) What is the present value of the outstanding preferred stock?
ii) What will occur to prices as risk free rate increases? Describe?
5) Champion Breweries should select between 2 assets purchases. Annual rate of return and related probabilities are given below sum up firm's analysis.
Asset A Assets B
Rate of Return Probability Rate of Return Probability
10% 30% 5% 40%
15% 40% 15% 20%
20% 30 25% 40%
For each asset compute:
i) Expected Rate of Return?
ii) The standard deviation of the return?
iii)The coefficient variation of the return?
iv) Which asset should champion chose?