An investor is forming a portfolio by investing
1) An investor is forming a portfolio by investing $40,000 in stock A which has a beta of 1.80, and $10,000 in stock B which has a beta of 0.90. The return on the market is equal to 8.5% and treasure bonds have a yield of 3.5% (rRF). What’s the required date of return on the investor’s portfolio?2) Construct an amortization schedule for a $2,000, 6% annual rate loan with 3 equal payments. The first payment will be made at the end of the 1st year.(A) Find the required annual payments.(B) Completed the following amortization tableYearBeginning BalanceAnnual PaymentsInterestPaidPrincipalPaidEndingBalance1233) (A) Find the yield to maturity for a 20-year, 6 annual coupon rate, $1,000 par value bond if the bond sells for $1,185 currently? We assume that interest is paid on this bond every six months. (B) What’s the bond’s current yield? What’s its capital gain yield?5) A financial analyst is following a high-growth company. She estimates that the current risk-free rate is 6.25%, the market premium is 5%, and the firm’s beta is 1.75. The current dividend just paid (D?) is $1.00. The analyst estimates that the company’s dividend will grow at a rate of 35% this year, 20% next year, and 15% the following year. After three years the dividend is expected to grow at a constant rate of 7% a year. The analyst believes that the stock is fairly priced. What’s the current price of the stock?6) A company is estimating its WACC. Its target capital structure is 30% debt, 10% preferred stock, and 60% common equity. Its bond has a 9% coupon, paid semiannually, a current maturity of 20 years, and sells for $1,000. The firm could sell, at par, $100 preferred stock which pays a 12% annual dividend, but flotation costs of 3% would be incurred. Rollins is a constant-growth firm which just paid a dividend (D?) of $1.00, sells for $20.00 per share, and has a growth rate of 6%. The firms’ tax rate is 30%.(A) What’s the component cost of debt of the firm?(B) What’s the cost of preferred stock of the firm?(C) What’s the firm’s cost of common stock using the DCF approach?(D) What’s the firm’s Weighted Average Cost of Capital (WACC)?
