1. Your firm has a beta of 2.2 and just paid a dividend of $2 that is expected to grow at 8%. You are considering an acquisition that would lower your beta to 1.8 and your growth rate to 6.5%. If the risk-free rate is 2% and the market risk premium is 5.5%, should you undertake the acquisition?
A. Yes
B. No
C. Not enough information to answer
2. A stock with a beta of 0.8 just paid a dividend of $1.10 expected to grow at 5%. If the risk-free rate is 2% and the market risk premium is 6%, what should be the price of the stock in six years?
A. $81.89
B. $81.89
C. $64.17
D. $85.99
3. A stock with a beta of 1.1 just paid a dividend of $2 that is expected to grow at 4%. If the risk-free rate is 2% and the market risk premium is 5.5%, what should be the price of the stock today?
A. $108.11
B. $112.43
C. $49.38
D. $51.36
4. Bob’s Burgers stock is priced at $24, has a beta of 1.6 and just paid a dividend of $1.45 that you expect to grow at 7%. If the risk-free rate is 2% and the market risk premium is 7%, would you buy their stock?
A. Yes
B. No
C. Not enough information to answer
5. If a stock's beta increases, with no other changes, what should happen to the price of the stock?
A. It should rise
B. It should fall
C. It shouldn't change
D. There is no way to tell what would happen to the price