Question 1
The covariance of the returns between Stock A and Stock B is 0.0087. The standard deviation of Stock A is 0.26, and the standard deviation of Stock B is 0.37. What is the correlation coefficient between the returns of the two stocks?
Question 2
The standard deviation of the returns for the Green Company is 0.7, whereas Blue Companystock returns have had astandard deviation of 0.8. The correlation coefficient between the stock returns is 0.1. What is the standard deviation of a portfolio composed of 70 percent Green and 30 percent Blue? Round the answer to three decimal points.
Question 3
The risk-free rate of return is currently 3 percent, while the market premium is 6 percent. If the beta of Sharpe, Inc.stockis 1.8, then what is the company's expected return?
Question 4
The expected return onKwik Compost stock is 16.6 percent. If the expected return on the market is 10 percent, and the risk-free rate is 4 percent then what isthe beta of the company?
Question 5
AMC Inc. hascalculated a cost of common equity capital of 18 percent. Its cost ofreturn on debt is 8 percent. The firm is 40 percent debt financedwith the remainder of financing attributable to common shares.Find the after-tax weighted average cost of capital for AMC, if it is subject to a 40 percent marginal tax rate.
Question 6
The beta for the equity shares of MMR Inc. is equal to 1.5. The risk-free return is projected to remain at 8 percent and the expected return on the market is 14 percent. MMR's average cost of debt is 12 percent. Thefirm has 3,000,000 outstanding and the closing price of the stock at the close of the market was $40/share and $80,000,000 of debt. What is the WACC for MMR, Inc. if the company faces a marginal tax rate of 35%?
Question 7
Using CAPM, A stock has a beta of .92 and an expected return of 10.3 percent. A risk-free asset currently earns 5 percent.Ifa portfolio composed of the stock and the risk-free asset hasa beta of .50,what aretheportfolio weights?What is the explanation of this result?