op hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $50. The stock will pay a dividend at year-end of $2. Assume that risk-free Treasury securities currently offer an interest rate of 2%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2017 (figures in percent per year) are as follows. Portfolio Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Treasury bills 3.8 Treasury bonds 5.3 1.5 Common stocks 11.5 7.7 a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) b. What price should she be willing to pay for the stock today?

op hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $50. The stock will pay a dividend at year-end of $2. Assume that risk-free Treasury securities currently offer an interest rate of 2%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2017 (figures in percent per year) are as follows. Portfolio Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Treasury bills 3.8 Treasury bonds 5.3 1.5 Common stocks 11.5 7.7 a. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) b. What price should she be willing to pay for the stock today?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 1P

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Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $46. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.4%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2017 (figures in percent per year) are as follows. ortfolio Average AnnualRate of Return (%) Average Premium (Extra returnversus Treasury bills) (%) Treasury bills 3.8 Treasury bonds 5.3 1.5 Common stocks 11.5 7.7 1. What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) 2. What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $49. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.1%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2020 (figures in percent per year) are as follows. Portfolio Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Treasury bills 3.7 Treasury bonds 5.4 1.7 Common stocks 11.5 7.7 What is the discount rate on the stock? Note: Enter your answer as a percent rounded to 2 decimal places. What price should she be willing to pay for the stock today? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
I need someone to check my answer Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $49. The stock will pay a divided at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 2.1% Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2017 (figures in percent per year) are as follows Portfolio Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Treasury bills 3.8 Treasury bonds 5.3 1.5 Common stocks 11.5 7.7 What is the discount rate on the Stock? 7.7%+ 2.1% =9.8% What price should she be willing to pay for the stock today? Price= ($3.00 + $49)/ (1+0.098) = $47.36
The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 Index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 1% over the coming month. Beta R-square Standard Deviationof Residuals 0.75 0.65 0.05 (i.e., 5% monthly) Required: a-1. If he holds a $12.0 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, how many contracts should he enter? The S&P 500 currently is at 2,000 and the contract multiplier is $50. a-2. Should he buy or sell contracts?multiple choice Sell Correct Buy b. Assuming that monthly returns are approximately normally distributed, what is the probability that this market-neutral strategy will lose money over the next month? Assume the risk-free rate is 0.8% per month. (Do not round intermediate calculations. Round your percentage answer to 2…
Please explain using Excel and show/explain formulas. Percival Hygiene has $10 million invested in long-term corporate bonds. This bond portfolio’s expected annual rate of return is 8%, and the annual standard deviation is 10%. Amanda Reckonwith, Percival’s financial adviser, recommends that Percival consider investing in an index fund that closely tracks the Standard & Poor’s 500 index. The index has an expected return of 13%, and its standard deviation is 14%. a. Suppose Percival puts all his money in a combination of the index fund and Treasury bills. Can he thereby improve his expected rate of return without changing the risk of his portfolio? The Treasury bill yield is 3%. multiple choice Yes No b. Could Percival do even better by investing equal amounts in the corporate bond portfolio and the index fund? The correlation between the bond portfolio and the index fund is +0.3. multiple choice Yes No
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You have funds invested in a mutual fund of S&P 500 stocks. Over the last 5 years, the annual percent returns of the S&P 500 are 19.58%, −6.30%, 28.94%, 16.32%, and 14.55%. What is the average annual percent return on the S&P 500 stocks over the last 5 years? The average annual percent return?? (the answer is not 14.62%)
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ou plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.5 B 120 million 1.5 C 80 million 1.8 D 80 million 1.0 E 60 million 1.4 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 3%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return 0.1 -25 % 0.2 0 0.4 13 0.2 30 0.1 51 What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) ri = 0.8% + (10.8%)bi ri = 0.8% + (12.3%)bi ri = 3.0% + (10.8%)bi ri = 2.3% + (10.2%)bi ri = 3.0% + (12.3%)bi Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount…
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.7 B 120 million 1.4 C 80 million 2.1 D 80 million 1.0 E 60 million 1.4 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 4%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return 0.1 -26% 0.2 0 0.4 13 0.2 30 0.1 50 What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) ri = 5.7% + (9.6%)bi ri = 5.7% + (9.5%)bi ri = 4.0% + (9.6%)bi ri = 2.1% + (9.0%)bi ri = 4.0% + (9.5%)bi Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a…
Your portfolio consists of the following investment in stock with corresponding beta: · P200,000 in a 0.8 beta stock · P100,000 in a 1 beta stock · P100,000 in a 1.2 beta stock Last year, the required rate of return of this portfolio is 20%. The quoted risk-free rate on the short-term government issued security is 5%. This year the only change noted is the increased by 1% on the market risk premium. What is the current required rate of return of this portfolio
The financial controller is considering the use of the Capital Asset Pricing Model as a surrogate discount factor. The risk-free rate is 5 percent. The information in the table below has been used by company management in calculating the stock beta value which is 1.151and the expected return on the stock which is 12.5%.Year Stock Market Index share Price2011 2000 $15.002012 2400 $25.002013 2900 $33.002014 3500 $40.002015 4200 $45.002016 5000 $55.002017 5900 $62.002018 6000 $68.002019 6100 $74.002020 6200 $80.002021 6300 $83.33e) Calculate the CAPMf) Explain why this figure may differ from that calculated…

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Portfolio	Average Annual Rate of Return (%)	Average Premium (Extra return versus Treasury bills) (%)
Treasury bills		3.8
Treasury bonds		5.3	1.5
Common stocks		11.5	7.7