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1. Problem- Under-/Overvalued Stock
A manager believes his firm will earn a return of 16.20 percent next year. His firm has a beta of 1.98, the expected return on the market is 13.10 percent, and the risk-free rate is 5.10 percent.
Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.)
Required return =
2. Problem-Portfolio Beta
You own $18,615 of Human Genome stock that has an assumed beta of 3.56. You also own $13,870 of Frozen Food Express (assumed beta = 1.69) and $4,015 of Molecular Devices (assumed beta = 0.54).
What is the beta of your portfolio? (Round your answer to 2 decimal places.)
Portfolio beta =
XY co. bought a machine 5 years ago for $15,000. The machine had an expected life of 12 years with no salvage value then. XY uses straight line depreciation.
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Summit Systems has an equity cost of capital of 11.5%, will pay a dividend of $1.00 in one year, and its dividends had been expected to grow by 7.0% per year. What is the drop in value of a share of Summit Systems stock based on this information? If ..
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