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Nachman Industries just paid a dividend of D0 $1.32. Analysts

Resolved Question:

Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value?

a. $41.59 b. $42.65 c. $43.75 d. $44.87 e. $45.99

Suppose you hold a portfolio consisting of a $10,000 investment in each of 8 different common stocks. The portfolio’s beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.35. What would the portfolio’s new beta be?

a. 1.17 b. 1.23 c. 1.29 d. 1.36 e. 1.43

Scheuer Enterprises has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Scheuer's required rate of return?

a. 9.43% b. 9.67% c. 9.92% d. 10.17% e. 10.42%

Kristina Raattama holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875.

Stock Investment Beta A $ 50,000 0.50 B 50,000 0.80 C 50,000 1.00 D 50,000 1.20 Total $200,000

If Kristina replaces Stock A with another stock, E, which has a beta of 1.50, what will the portfolio's new beta be?

a. 1.07 b. 1.13 c. 1.18 d. 1.24 e. 1.30

Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds?