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[answered] 1. You bought a stock one year ago for $48.84 per share and


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1. You bought a stock one year ago for $48.84 per share and sold it today for $57.39 per share. It paid a $1.47 per share dividend today.

a. What was your realized return? (Round to Two decimal place)

b. How much of the return came from dividend yield and how much came from capital gain? (Round to Two decimal place)


2. You bought a stock one year ago for $49.14 per share and sold it today for $45.73 per share. It paid a $1.53 per share dividend today.

a. What was your realized return? (Round to Two decimal place)

b. How much of the return came from dividend yield and how much came from capital gain? (Round to Two decimal place)


3. Consider two local banks. Bank A has 94 loans outstanding; each for $1.0 million that it expects will be repaid today. Each loan has a 6% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of $94 million outstanding, which it also expects will be repaid today. It also has a 6% probability of not being repaid. Which bank faces less risk? Why?

A. In both cases the expected loan payoff is the same: $94 million?0.94=$88.4 million. Consequently, I don't

care which bank I own.

B. The expected payoff is higher for Bank A, but is riskier. I prefer Bank B.

C. The expected payoffs are the same, but Bank A is riskier. I prefer Bank B.

D. The expected payoffs are the same, but Bank A is less risky. I prefer Bank A.


4. Suppose the market risk premium is 5% and the risk-free interest rate is 4%. Using the data in the table,

???

Starbucks

Hershey

Autodesk

Beta

0.8

0.33

1.96

, calculate the expected return of investing in:

a. Starbucks' stock. (Round to Two decimal place)

b. Hershey's stock. (Round to Two decimal place)

c. Autodesk's stock. (Round to Two decimal place)


5. You own three stocks: 600 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5,000 shares of Colgate-Palmolive. The current share prices and expected returns of Apple, Cisco, and Colgate-Palmolive are, respectively, $462, $15, $104 and 12%, 10%, 8%.

a. What are the portfolio weights of the three stocks in your portfolio? (Round to two decimal place)

b. What is the expected return of your portfolio? (Round to two decimal place)

c. Suppose the price of Apple stock goes up by $20, Cisco rises by $5, and Colgate-Palmolive falls by $14.

What are the new portfolio weights? (Round to two decimal place)

d. Assuming the stocks? expected returns remain the same, what is the expected return of the portfolio at the newprices? (Round to two decimal place)


6. Suppose Autodesk stock has a beta of 2.16, whereas Costco stock has a beta of 0.72. If the risk-free interest rate is 6% and the expected return of the market portfolio is 12.0%, what is the expected return of a portfolio that consists of 55% Autodesk stock and 45% Costco stock, according to the CAPM?

The expected return is _________________%. (Round to Two decimal place)


7. Unida Systems has 43 million shares outstanding trading for $12 per share. In addition, Unida has $110 million in outstanding debt. Suppose Unida's equity cost of capital is 15%, its debt cost of capital is 8%, and the corporate tax rate is 38%.

a. What is Unida's unlevered cost of capital? (Round to one decimal place)

b. What is Unida's after-tax debt cost of capital? (Round to one decimal place)

c. What is Unida's weighted average cost of capital? (Round to one decimal place)


8. You would like to estimate the weighted average cost of capital for a new airline business. Based on its industry asset beta, you have already estimated an unlevered cost of capital for the firm of 10%. However, the new business will be 23% debt financed, and you anticipate its debt cost of capital will be 7%. If its corporate tax rate is 34%, what is your estimate of its WACC?

The equal cost of capital is ___________%? (Round to one decimal place)




1. You bought a stock one year ago for $48.84 per share and sold it today for $57.39 per share. It

 

paid a $1.47 per share dividend today.

 

a. What was your realized return? (Round to Two decimal place)

 

b. How much of the return came from dividend yield and how much came from capital gain?

 

(Round to Two decimal place) 2. You bought a stock one year ago for $49.14 per share and sold it today for $45.73 per share. It

 

paid a $1.53 per share dividend today.

 

a. What was your realized return? (Round to Two decimal place)

 

b. How much of the return came from dividend yield and how much came from capital gain?

 

(Round to Two decimal place) 3. Consider two local banks. Bank A has 94 loans outstanding; each for $1.0 million that it expects will be repaid

 

today. Each loan has a 6% probability of default, in which case the bank is not repaid anything. The chance of

 

default is independent across all the loans. Bank B has only one loan of $94 million outstanding, which it also

 

expects will be repaid today. It also has a 6% probability of not being repaid. Which bank faces less risk? Why?

 

A. In both cases the expected loan payoff is the same: $94 million?0.94=$88.4 million. Consequently, I don't

 

care which bank I own.

 

B. The expected payoff is higher for Bank A, but is riskier. I prefer Bank B.

 

C. The expected payoffs are the same, but Bank A is riskier. I prefer Bank B.

 

D. The expected payoffs are the same, but Bank A is less risky. I prefer Bank A. 4. Suppose the market risk premium is 5% and the risk-free interest rate is 4%. Using the data in the table, Beta Starbucks Hershey Autodesk

 

0.8

 

0.33

 

1.96 , calculate the expected return of investing in:

 

a. Starbucks' stock. (Round to Two decimal place)

 

b. Hershey's stock. (Round to Two decimal place)

 

c. Autodesk's stock. (Round to Two decimal place) 5. You own three stocks: 600 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5,000 shares of

 

Colgate-Palmolive. The current share prices and expected returns of Apple, Cisco, and Colgate-Palmolive are,

 

respectively, $462, $15, $104 and 12%, 10%, 8%.

 

a. What are the portfolio weights of the three stocks in your portfolio? (Round to two decimal place)

 

b. What is the expected return of your portfolio? (Round to two decimal place)

 

c. Suppose the price of Apple stock goes up by $20, Cisco rises by $5, and Colgate-Palmolive falls by $14.

 

What are the new portfolio weights? (Round to two decimal place)

 

d. Assuming the stocks? expected returns remain the same, what is the expected return of the portfolio at the new

 

prices? (Round to two decimal place) 6. Suppose Autodesk stock has a beta of 2.16, whereas Costco stock has a beta of 0.72. If the risk-free interest rate

 

is 6% and the expected return of the market portfolio is 12.0%, what is the expected return of a portfolio that

 

consists of 55% Autodesk stock and 45% Costco stock, according to the CAPM?

 

The expected return is _________________%. (Round to Two decimal place) 7. Unida Systems has 43 million shares outstanding trading for $12 per share. In addition, Unida has $110 million in

 

outstanding debt. Suppose Unida's equity cost of capital is 15%, its debt cost of capital is 8%, and the corporate tax

 

rate is 38%.

 

a. What is Unida's unlevered cost of capital? (Round to one decimal place)

 

b. What is Unida's after-tax debt cost of capital? (Round to one decimal place)

 

c. What is Unida's weighted average cost of capital? (Round to one decimal place) 8. You would like to estimate the weighted average cost of capital for a new airline business. Based on its industry

 

asset beta, you have already estimated an unlevered cost of capital for the firm of 10%. However, the new business

 

will be 23% debt financed, and you anticipate its debt cost of capital will be 7%. If its corporate tax rate is 34%,

 

what is your estimate of its WACC?

 

The equal cost of capital is ___________% (Round to one decimal place)

 


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