Reference no: EM132443231

Problem 1: You have developed data which give (1) the average annual returns of the market for the past five years and (2) similar annual returns information on Stocks A and B. Which of the possible answers best describes the historical beta for A and B? SHOW YOUR WORK. 

Years     Market index       Stock A prices       Stock B prices

2008             735                      $16.79                 $165

2009             1169                    $37.47                 $235

2010             1327                    $39.03                 $375

2011             1364                    $25.40                  $489

2012             1519                    $45.16                    $570

A. beta_A < 0;   beta_B > 1.

B. beta_A < 1;   beta_B < 1.

C. beta_A > 0;   beta_B > 1.

D. beta_A > 1;   beta_B < 1.

E. beta_A < -1;beta_B > 1.

Problem 2: What is the approximate expected coefficient of variation () of returns for a projected one-year project that is 50-50 chances to give +10% return as it is to provide a 5% loss? SHOW WORK. 

A) 0

B) 0.2

C) 0.50

D) 1.00

E) 3.00

Problem 3: FISHER Corporation expects the stock's year-end dividend to be $2 a share.  The stock's required rate of return is 15 percent and the stock's dividend is expected to grow at the constant rate of 5 percent forever.  What is the expected price of the Waters Corporation stock six years from now? SHOW YOUR WORK.

Problem 4: The present value of the following cash flows with 11% discount rate is $3,428:

End of                           Cash

Year                            Flow

1                               $755

2                                 755

3                                 755

4                                     ? 

5                                 755

6                                 755

What is approximately the value cash inflow at the end of the 4th year?