1. Stop and Go has a 4.5 percent profit margin and a 15 percent dividend payout ratio. The total asset turnover is 1.6 and the debt-equity ratio is 0.60. What is the sustainable rate of growth?
2. A risky mutual fund has an expected return of 10% and a standard deviation of 25%. The rate on Treasury bills is 2%. For an investor with risk aversion coefficient equal to 4, _____%of his capital should be allocated to the risk free T-bills.
3. You Invest 50% of your money in Asset A and the remaining 50% in Asset B. What is the expected return on Asset A?
State Probability A B
Boom .4 30% -5%
Bust .6 -10% 25%