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
the market portfolio? (Round your answer to 2 decimal
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

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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.

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