1. Given the following information, what is your best estimate for the firm s cost of equity on January 2, 2012, if the stock sells for $42 on that day? Date Dividend 12/31/07 $1.45 12/31/08 $1.68 12/31/09 $1.95 12/31/10 $2.27 12/31/11 $2.63 a. About 16% b. About 22% c. About 23% d. Cannot be determined e. None of the above
2. An investment earned the following returns for the returns 1998 through 2001: 30%, 40%, 15%, and 7%. What is the variance of returns for this investment? a. 0.0165 b. 0.0658 c. 0.1481 d. 0.2300 e. None of the above
3. Asset A has an expected return of 14.5% and a beta of 1.15. The risk-free rate is 5%. What is the market risk premium? a. 8.26% b. 11.96% c. 13.26% d. 16.96% e. None of the above