# Answer the questions based on

Answer the questions based on the following information:

(1) The expected return required by the market for a portfolio
with a beta of 1 is 14%.

(2) The T-bill’s expected rate of return is estimated to
be5%.

a.What is the expected rate of return on
places.)

b.What would be the expected rate of
return on a stock with ß = 0? (Round your answer to 2
decimal places.)

c.Suppose you consider buying a share of
stock at \$49. The stock is expected to pay \$4 dividends next year
and you expect it to sell then for \$51. The stock risk has been
evaluated at ß = –.5. Is the stock overpriced or underpriced?

multiple choice

• Underpriced

• Overpriced

# Answer the questions based on

1. Answer the questions based on the table below.
 Cash Dividend Stock Repurchases Stock Dividend Value of Operations \$900,000,000 \$900,000,000 \$900,000,000 Value of Cash balance 80,000,000 80,000,000 80,000,000 Total value of firm \$980,000,000 \$980,000,000 \$980,000,000 – Debt 100,000,000 100,000,000 100,000,000 – Preferred stock 80,000,000 80,000,000 80,000,000 Value of equity \$800,000,000 \$800,000,000 \$800,000,000 # of shares Before the event 40,000,000 40,000,000 40,000,000 Stock price Before the event \$20 \$20 \$20 # of shares After the event ( ) ( ) ( ) Stock price After the event ( ) ( ) ( )
1. The firm considers cash dividend using the current cash balance of \$80,000,000. Figure out the dividend per share.
1. Once the cash dividend is completed, figure out the stock price.
1. The firm considers stock repurchase using the current cash balance, \$80,000,000. Figure out how many shares this firm can repurchase.

1. Once the stock repurchase is completed, figure out the stock price.

1. The firm considers a 25% stock dividend. How many new shares does this firm issue?
1. Once the stock dividend of 25% is completed, figure out the stock price.