Go to the website Yahoo! Finance and type in the letters "RIO" in the search box and select "Rio Tinto." You should now be directed to a Summary page where you will be able to view the beta for Rio Tinto. Note: RIO is the stock symbol for Rio Tinto Plc, a worldwide mining and mineral processing company.
Question 1: Beta for RIO= 1.12
Question 2: Does the expected return on RIO stock move in the same direction or in the opposite direction in comparison to the return in the stock market? Explain which of the two characteristic of beta would tell you this and what it means.
Question 3: Is RIO stock less risky or more risky than the market? Explain which of the two characteristic of beta would tell you this and what it means.
Question 4: Sports Authority Inc. has just paid a cash dividend, D0, of $2.00 per share. Investors require a return, k, of 12.0% from investments such as this. Use this information to answer the next two questions. If the dividend is expected to grow at a constant rate, g, of 4.0% per year, then find the current value, P0, of a share of stock using the dividend discount model (DDM).
Question 5: Estimate what P5, the value a share of stock five years from now, will be .
Question 6: Assume that the risk-free rate is 4.5%, the market return is 10.5%, and the return on stock W is 12.5%. Using the CAPM, determine the beta coefficient for stock W.
Question 7: An investment fund consists of four stocks with the following investments and betas:
Stock A: $400,000 +1.50
Stock B: $600,000 -0.50
Stock C: $1,000,000 +1.25
Stock D: $2,000,000 +0.75
Calculate the portfolio beta for this investment fund.