Question

You have just bought 10 shares of JYP’s stock for $10/share. The company announced that it will pay a dividend of $0.50/share in one year. If you want to earn a 9% return on your investment, what price do you need to sell the stock immediately after it pays the dividend? (hint: use stock realized return formula)

A. $10.4/share

B. $10.9/share

C. $19/share

D. $18.5/share

Consider now a different stock C. What is the expected return of this stock C if the firm will earn 30% during a period of economic boom, 10% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 60%, and 20%, respectively?

A. 10%

B. 12.2%

C. 12.4%

D. 16%

Stocks A and B had the following returns:

What was the average return of each stock?

Y ear	Stock A	Stock B
1	9%	6%
2	12%	8%
3	-4%	-1%
4	1%	5%

A. Stock A: 4.5%, Stock B: 4.5%;

B. Stock A: 6%, Stock B: 4.5%;

C. Stock A: 6%, Stock B: 5.5%;

D. Stock A: 4.5%, Stock B: 5.5%;

Stocks A and B had the following returns:

What was the standard deviation of each stock?

Y ear	Stock A	Stock B
1	9%	6%
2	12%	8%
3	-4%	-1%
4	1%	5%

A. Stock A: 0.073, Stock B: 0.039;

B. Stock A: 0.037, Stock B: 0.039;

C. Stock A: 0.073, Stock B: 0.052;

D. Stock A: 0.073, Stock B: 0.073;

Based on the results from Q4 and Q5, Stock A stock is considered more risky than Stock B after comparing their standard deviations?

True False

You have learned that the beta of A is 1.3 while the beta of B is 0.5. The risk-free rate is 3%.What are the required rate of returns (RRR) of A and B if the expected return to the market is 10%?(hint: CAMP formula)

A. Stock A: 12.1%, Stock: 6.5%;

B. Stock A: 16%, Stock: 8%;

C. Stock A: 16%, Stock: 6.5%;

D. Stock A: 13%, Stock: 8%;

Based on informations from Q7, Stock B is considered more risky relative to the market because it has a beta less than 1.

True False

Answer 1

Page Stock return formula Return = Change in Price + dividend Current Price 9 Price after one year to lotos ploo Prece immediately after dividend = $ Correct answer option (A) 10.4/shall Expected return of stock e s kook-X-retum ) = Cococco 30X0.2 + lox0.6 + 2x 0.2 e Correct answer options (c) Average return of Stock A = { Return Rot Where, n = number of n 9+19+1-4 = PANAS 4.5 Average Hence, return 8 to 4 all of Stock B = 6 +8=1+5 = 4.5% Correct option (A) -

where Standard deviation of sleck A. e r { (R-RA) 2 o where, PA - Enfected return - stes 'analeted in previous part = 1/6-4.5) ² + (12-4.5) (-4-45 ) ² + (9-4.52 Stock % AP Calculated in olt fotosestol 0.063 Standard deviation of Stack B = / E (R-R) 2 SD = 16-4.5)2+(8-45) z (41-4. 52 t5-4.5 2 = 33.5% or 0.034 (All the options are incorrect