1. The markets in general are paying a 3% real rate of return. Inflation is expected to be 2%. ABC stock commands a 6% risk premium. What is the risk-free rate of return?
2. The required rate of return on the Daisy Corporation's common stock is 11%, the current real rate of return in the market is 2%, and the market's risk-free rate of return is 4%. In this case, What is the risk premium associated with Daisy's stock?
3. Six years age, Leo invested $2,000. Today his investment is worth $3,200. The yield on this investment is?
4. Izzie bought a stock for $30 a share two years age. The stock does not pay any dividends. Today Izzie sold the stock for $32 a share. What is the internal rate of return on this investment? What is dollar return? What is the total holding period return in percentage term?
5. An investment produced annual rates of return of 5%, 12%, 8% and 11% respectively over the past four years. What is the standard deviation of these returns?
6. What is the expected return on a stock with a beta of 1.09, a market risk premium of 8%, and a risk-free rate of 4%?
7. The risk-free rate of return is 4%, while the market rate of return is 11%. Delta Company has a historical beta of 1.25. Today, the beta for Delta Company was adjusted to reflect internal changes in the structure of the company. The new beta is 1.38. What is the amount of the change in the expected rate of return for Delta Company based on this revision to beta?
8. Dr. Zweibel's portfolio consists of four stocks: AZMN, 35%, beta 2.4; MKR, 20%, beta 1.6; ABDE, 2.5%, beta 1.8; and SBUK, 20%, beta 2.1. Compute Dr. Z's portfolio beta. Does he seem to be a conservative or aggressive investor?
9. Assume that an investor generates the following income stream and can be purchased at the beginning of 2009 for $1000 and sold at the end of 2015 for $1200. Estimate the yield for this investment. If a minimum return of 9% is required, would you recommend this investment? Explain.