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a) You own a portfolio that consists of 15% of stock A with a beta of 1.42, 20% of stock B with a beta of 0.92, 30% of stock C with a beta of 1.26 and 35% of stock D with a beta of 1.72. What is the portfolio beta? If the risk free rate is 3.6% and the market premium is 8.4%, what is the expected rate of return for Stock D? What is the expected rate of return for the whole portfolio?
b) A share of stock sells today for $52.50. The beta of the stock is 1.18. The expected return on the overall market is 10.6% and the risk free rate is 2.5%, What is the overall expected return of the stock? If there is to be a dividend of $1.68 at the end of the year, what should be the price of the stock at the end of the year? If the price of the stock is expected to be $56.10, how much does the dividend change to meet the overall return expectations?
c) Stock M has a beta of 1.25 and an expected return of 11.75%. Stock K has a beta of 1.65 and an expected return of 12.3%. If the risk free rate is 3% and the market premium is 6%, are these stocks overpriced or under-priced and if so, by how much? How much would each one’s beta have to be in order to be priced according to the market conditions? Get Finance homework help today