Question

Module 4 Worksheet—Chapters 6 & 7

Please complete the problems in Excel on this worksheet and upload to the drop box for module 4 no later than Sunday, 11:55PM. Don’t round – use four decimal places until the final answer.

1. AA Corporation’s stock has a beta of 1.6. The risk-free rate is 2.5% and the expected return on the market is 14.5%. What is the required rate of return on AA’s stock?

3. Suppose you manage a $6 million fund that consists of four stocks with the following investments:

Stock​​Investment​​Beta

A​​$900,000​​1.70

B​​1,100,000​​-0.70

C​​1,500,000​​1.15

D​​2,500,000​​0.85

If the market’s required rate of return is 12% and the risk-free rate is 3%, what is the fund’s required rate of return?

4. Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year

(i.e. D1 = $1.50). The dividend is expected to grow at a constant rate of 11% a year. The required rate of return on the stock, r is 15%. What is the estimated value per share of Boehm’s stock?

Answer 1