Dollar returns and Percentage returns. Dividend Yield, Capital Gains Yield, Total Percentage Return. Arithmetic Average Return, Geometric Average Return, Real return, Risk Premium: See handouts, quiz and questions from book.
1) You buy a stock for $50 at the beginning of the year and it pays a $1.50 in dividends and sells for $56 at the end of the year. What was the Dividend Yield, Capital Gains Yield , Total Percentage Return
2) IF a stock earned 6%, 10%, -14%, and 25% over the last 4 years, what was the Arithmetic Average Return, Geometric Average Return , Vaiance , Standard Deviation over the last 4 years?
3) If Mid Cap Stocks earned an average return of 14% over the last 10 years and inflation averaged 3% while the 3-month t-bill averaged 3.9%, what was the Real Return for Mid Cap Stocks and the Risk Premium for Mid Cap Stocks
1) An analyst for ABC company has developed the following distribution for the next year:
State of the economy Probability Stock’s Return
Mild Recession 20% -9%
Moderate growth 65% 11%
Expansion 15% 16%
What is the expected return of ABC stock for the next year based on the analyst’s forecasts?
Expected return = ___________
2) The current risk-free rate is 4%. The market risk premium is 7%. Company XYZ has a beta equal to 1.2.
a) What is the expected (required) rate of return on the stock market?
Required Rate of Return on the Stock Market =_____
b) What is the required rate of return for XYZ?
Required Rate of Return for XYZ=__________
c) Calculate the required rate of return for CC Company assuming that the Investors expect the stock market to return 12.2% and Treasury Bills to earn 4.3%. Company CC has a beta of 0.7.
Required rate of return = ___
3) We have a portfolio that is invested 55% in Asset A and 45% in Asset B. Assume the following
State of the Econ . Probability Exp.Ret (Asset A) Exp. Ret (Asset B)
Recession 40% -4% 2%
Expansion 60% 16% 6%
Calculate the Return of the portfolio under each of the given states of the economy
State of the Econ. Probability Return of the Portfolio containing 55% in A and 45% in B
Recession 40% _________
Expansion 60% __________
What is the overall Expected return of the portfolio?
Expected Return on the Portfolio = ______________
1) You are given the following information concerning ABC Corp.
The current capital structure of ABC Corp consists of 30% Debt, 5% Preferred Stock and 65% Equity. ABC has a current corporate tax rate of 30%
The company has a 6.2 percent coupon bond with 10 years to maturity and a quoted price of 105.6. The bonds pay interest semiannually.
ABC Corp has preferred stock that pays a 6.4 percent preferred dividend and currently sells for $92 per share.
Company ABC has a Beta of 1.2 and the current risk-free rate is 1.5% and the market risk premium is estimated at 8%.
a) What is the before tax cost of debt for the firm ? ________________%
b) What is the cost of preferred stock for the firm? __________________%
c) What is the cost of equity for the firm? _________________%
What is the WACC for ABC Corp? WACC = ________________%
2) Western Electric has 150,000 shares of common stock with a current price of $70. The firm has 8,000 shares of preferred stock currently selling at $45 and has 5,000 bonds outstanding selling for $940. If the required return on common stock is 12%, the required return on Preferred stock is 9% and the YTM on the company’s bonds is 8%, and the company’s tax rate is 25%. What is the percent of the assets financed by debt. Percent financed by preferred stock? Percent financed by common equity? And the assets WACC?
1) You buy a stock for $50 at the beginning of the year and it pays a $1.50 in dividends and sells for $56 at the end of the year. What was the Dividend Yield, Capital Gains Yield , Total Percentage Return
2) IF a stock earned 6%, 10%, -14%, and 25% over the last 4 years, what was the Arithmetic Average Return, Geometric Average Return , Vaiance , Standard Deviation over the last 4 years?
3) If Mid Cap Stocks earned an average return of 14% over the last 10 years and inflation averaged 3% while the 3-month t-bill averaged 3.9%, what was the Real Return for Mid Cap Stocks and the Risk Premium for Mid Cap Stocks
1) An analyst for ABC company has developed the following distribution for the next year:
State of the economy Probability Stock’s Return
Mild Recession 20% -9%
Moderate growth 65% 11%
Expansion 15% 16%
What is the expected return of ABC stock for the next year based on the analyst’s forecasts?
Expected return = ___________
2) The current risk-free rate is 4%. The market risk premium is 7%. Company XYZ has a beta equal to 1.2.
a) What is the expected (required) rate of return on the stock market?
Required Rate of Return on the Stock Market =_____
b) What is the required rate of return for XYZ?
Required Rate of Return for XYZ=__________
c) Calculate the required rate of return for CC Company assuming that the Investors expect the stock market to return 12.2% and Treasury Bills to earn 4.3%. Company CC has a beta of 0.7.
Required rate of return = ___
3) We have a portfolio that is invested 55% in Asset A and 45% in Asset B. Assume the following
State of the Econ . Probability Exp.Ret (Asset A) Exp. Ret (Asset B)
Recession 40% -4% 2%
Expansion 60% 16% 6%
Calculate the Return of the portfolio under each of the given states of the economy
State of the Econ. Probability Return of the Portfolio containing 55% in A and 45% in B
Recession 40% _________
Expansion 60% __________
What is the overall Expected return of the portfolio?
Expected Return on the Portfolio = ______________
1) You are given the following information concerning ABC Corp.
The current capital structure of ABC Corp consists of 30% Debt, 5% Preferred Stock and 65% Equity. ABC has a current corporate tax rate of 30%
The company has a 6.2 percent coupon bond with 10 years to maturity and a quoted price of 105.6. The bonds pay interest semiannually.
ABC Corp has preferred stock that pays a 6.4 percent preferred dividend and currently sells for $92 per share.
Company ABC has a Beta of 1.2 and the current risk-free rate is 1.5% and the market risk premium is estimated at 8%.
a) What is the before tax cost of debt for the firm ? ________________%
b) What is the cost of preferred stock for the firm? __________________%
c) What is the cost of equity for the firm? _________________%
What is the WACC for ABC Corp? WACC = ________________%
2) Western Electric has 150,000 shares of common stock with a current price of $70. The firm has 8,000 shares of preferred stock currently selling at $45 and has 5,000 bonds outstanding selling for $940. If the required return on common stock is 12%, the required return on Preferred stock is 9% and the YTM on the company’s bonds is 8%, and the company’s tax rate is 25%. What is the percent of the assets financed by debt. Percent financed by preferred stock? Percent financed by common equity? And the assets WACC?
