Finance Question

timer Asked: Nov 19th, 2016

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Finance 4310 Homework Problem Given the following information for Stock E: P0 = $40, Pˆ1 = $43.50, D1 = $1.10  E = 0.93, R f = 1%, Market Risk Premium = 5% a. What is the expected return on stock E based on the expected future cash flows? b. What is the required return based on the CAPM? c. Is stock E undervalued, correctly priced, or overvalued?
Finance 4310 Homework Problem Given the following information about Stock A: P0 = $62.75 βA = 1.3 D1 = $2.20 paid at end of year KM = 11% annual Rf = 5% annual a. Estimate the price of stock A at the end of the year b. Suppose that Stock a is combined with two other stocks as follows: Stock A B C Proportion 0.25 0.40 0.35 Beta 1.3 0.9 1.1 What is the beta of the portfolio of three stocks?

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