Read the instructions carefully and complete all work in detail.
Week 3 Individual Assignment- Refer to Chapters 6 and 7 for materials to help you complete this assignment. Show step by step instructions on how you get to the answers in detail. The answers are provided to you for each question. You have to write in words and numbers step by step instructions on how exactly you get to the final answer which is highlighted for you.
3.1. Paris Company has made a portfolio of these three securities:
Security
Cost
E(R)
?(R)
Treasury bond
$65,000
5%
0
Marseille Corporation
$60,000
13%
25%
Lyon Company
$35,000
17%
35%
The correlation coefficient between Marseille and Lyon is 0.6. If the returns are normally distributed, find the probability that the return of the portfolio is more than 8%. 56.83% ?
3.2. Suppose you have $50,000 that you want to invest in two companies in the following table. Their correlation coefficient is 40%. Your portfolio should have a return of 13%.
Security
Price/share
E(R)
?(R)
Toulouse Oil Company
$10
12%
25%
Nice Aluminum
$20
16%
32%
(A) Approximately how many shares of stock of each company should you buy? Toulouse 3750 shares, Nice 625 shares ?
(B) What is the ? of the portfolio? .2314 ?
3.3. Nantes Corporations common stock sells for $51.25 a share and its current annual dividend is $5. The ? of this stock is 1.3. It has shown 3% annual growth in dividends for many years. The current riskless rate is 4%. Today, the analysts downgraded the stock from buy to hold. In response to the news, the stock dropped in price by $1.25. Assume that the stock will maintain the growth in dividends.
(A) Find the new ? of the stock. 1.336 ?
(B) Expected return of the market. 10.96% ?
3.4. The Strasbourg Corp common stock has a ? of 1.55 and it will pay a dividend of $1.65 next year. The following table shows the various possible economic situations.
State of the economy
Probability
Expected return of the market
Good
50%
15%
Fair
30%
10%
Poor
20%
-10%
The current riskless rate is 5%. The expected rate of growth of Strasbourg is 4%. Find the value of its common stock. The answer is not available ?
3.5. Montpellier Company stock currently sells at $150 a share. Given the uncertainty in the economy, you have estimated that after one year, the stock price and its dividend will have the following probability distribution.
Probability
Price/share
Dividend/share
20%
$200
$5.00
30%
$160
$4.50
40%
$150
$4.00
10%
$130
$3.00
The expected return of the market is 12% and the risk-free rate is 5%. Estimate the ? of the stock. The answer is not available ?
3.6. Bordeaux Company has the same growth rate as Rennes Corp. The current stock price of Bordeaux is $60 a share, and its dividend this year is $2. The riskless rate is 3% and the expected return on the market is 12%. Rennes Corp stock is selling at $40 a share. Its dividend next year will be $2.50 a share and its ? is 1.5. Find the ? of Bordeaux stock. ? = 1.214 ?
3.7. Lille Autos has ? = 1.4. It is interested in buying Reims Tires which has ? = 1.2. Lille believes that after the acquisition, its ? will become 1.3. The expected after-tax earnings from Reims will be $14 million for the first year, but this figure is expected to increase by 3% per year in future. The expected return on the market is 12%, and the riskless rate is 5%. Find the amount that Lille should spend on this acquisition. $126.126 million ?
3.8. Calculate the ? of Le Havre Corporation from the following data.
Year
Price of
Le Havre stock
Dividend
per share
S&P 500
index
S&P 500
dividend
Riskless
rate
beginning
end
beginning
end
2010
$70
$80
$2.00
1000
1050
3.05%
1.00%
2011
80
95
$2.00
1050
1100
3.20%
1.50%
2012
95
110
$3.00
1100
1300
3.50%
3.50%
2013
110
110
$1.00
1300
1400
3.00%
4.00%
? = .391872 » .39 ?
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Home>Business & Finance homework help>Read the instructions carefully and complete all work in detail.
Week 3 Individual Assignment- Refer to Chapters 6 and 7 for materials to help you complete this assignment. Show step by step instructions on how you get to the answers in detail. The answers are provided to you for each question. You have to write in words and numbers step by step instructions on how exactly you get to the final answer which is highlighted for you.
3.1. Paris Company has made a portfolio of these three securities:
Security
Cost
E(R)
?(R)
Treasury bond
$65,000
5%
0
Marseille Corporation
$60,000
13%
25%
Lyon Company
$35,000
17%
35%
The correlation coefficient between Marseille and Lyon is 0.6. If the returns are normally distributed, find the probability that the return of the portfolio is more than 8%. 56.83% ?
3.2. Suppose you have $50,000 that you want to invest in two companies in the following table. Their correlation coefficient is 40%. Your portfolio should have a return of 13%.
Security
Price/share
E(R)
?(R)
Toulouse Oil Company
$10
12%
25%
Nice Aluminum
$20
16%
32%
(A) Approximately how many shares of stock of each company should you buy? Toulouse 3750 shares, Nice 625 shares ?
(B) What is the ? of the portfolio? .2314 ?
3.3. Nantes Corporations common stock sells for $51.25 a share and its current annual dividend is $5. The ? of this stock is 1.3. It has shown 3% annual growth in dividends for many years. The current riskless rate is 4%. Today, the analysts downgraded the stock from buy to hold. In response to the news, the stock dropped in price by $1.25. Assume that the stock will maintain the growth in dividends.
(A) Find the new ? of the stock. 1.336 ?
(B) Expected return of the market. 10.96% ?
3.4. The Strasbourg Corp common stock has a ? of 1.55 and it will pay a dividend of $1.65 next year. The following table shows the various possible economic situations.
State of the economy
Probability
Expected return of the market
Good
50%
15%
Fair
30%
10%
Poor
20%
-10%
The current riskless rate is 5%. The expected rate of growth of Strasbourg is 4%. Find the value of its common stock. The answer is not available ?
3.5. Montpellier Company stock currently sells at $150 a share. Given the uncertainty in the economy, you have estimated that after one year, the stock price and its dividend will have the following probability distribution.
Probability
Price/share
Dividend/share
20%
$200
$5.00
30%
$160
$4.50
40%
$150
$4.00
10%
$130
$3.00
The expected return of the market is 12% and the risk-free rate is 5%. Estimate the ? of the stock. The answer is not available ?
3.6. Bordeaux Company has the same growth rate as Rennes Corp. The current stock price of Bordeaux is $60 a share, and its dividend this year is $2. The riskless rate is 3% and the expected return on the market is 12%. Rennes Corp stock is selling at $40 a share. Its dividend next year will be $2.50 a share and its ? is 1.5. Find the ? of Bordeaux stock. ? = 1.214 ?
3.7. Lille Autos has ? = 1.4. It is interested in buying Reims Tires which has ? = 1.2. Lille believes that after the acquisition, its ? will become 1.3. The expected after-tax earnings from Reims will be $14 million for the first year, but this figure is expected to increase by 3% per year in future. The expected return on the market is 12%, and the riskless rate is 5%. Find the amount that Lille should spend on this acquisition. $126.126 million ?
3.8. Calculate the ? of Le Havre Corporation from the following data.
Year
Price of
Le Havre stock
Dividend
per share
S&P 500
index
S&P 500
dividend
Riskless
rate
beginning
end
beginning
end
2010
$70
$80
$2.00
1000
1050
3.05%
1.00%
2011
80
95
$2.00
1050
1100
3.20%
1.50%
2012
95
110
$3.00
1100
1300
3.50%
3.50%
2013
110
110
$1.00
1300
1400
3.00%
4.00%
? = .391872 » .39 ?
Applied Sciences
Architecture and Design
Biology
Business & Finance
Chemistry
Computer Science
Geography
Geology
Education
Engineering
English
Environmental science
Spanish
Government
History
Human Resource Management
Information Systems
Law
Literature
Mathematics
Nursing
Physics
Political Science
Psychology
Reading
Science
Social Science
Home
Blog
Archive
Essay
Reviews
Contact
google+twitterfacebook
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