Peter is interested in investing in Hong Kong and will set up a porfolio worth $100,000. He received the following financial information and works out the investment plan.
a. ABC Company paid a dividend of $2.50 and announced that the next dividend would be increased 6%. Currently , the market price of the company is $55 and it is forecast to be $65 one year form now. What is the expectd return on ABC Company stock?
b. The market price of the JJ Industrial Group nowadays is $30 and it has just paid a dividend of $1.25 on common stock. If the group maintains a constant dividend growth rate of 4.5% in future, what is the expected return of the JJ Industrial Group?
c. Peter's portfolio will only cover the ABC Company and JJ Industrial Group. He will first subscribe to 1,000 shares of the ABC Company, and then the remaining profolio is JJ Industrial Group share(s) only. Betas of the ABC Company and JJ Industrial Group are 1.2 and 0.6, respectively. Estimate Peter's porfolio beta and return based on the answer in (a) and (b).