What is “relative rest”? Give an example of how and when it can be applied.

Calculate the expected return for C Inc., which has a beta of 0.8 when the risk-free rate is 0.04 and you expect the market return to be 0.12.  You can use the spreadsheet to solve the question: Exam 2 Spreadsheet.xlsx

Exhibit 8.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)   Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8 percent per year for the next five years. After that dividends are expected to grow at a normal rate of 5 percent per year. Assume that the appropriate discount rate is 7 percent.   Refer to Exhibit 8.3. The future price of the stock in year 5 is  You can use the spreadsheet to solve the question: Exam 2 Spreadsheet.xlsx

Calculate the expected return for F Inc., which has a beta of 1.3 when the risk-free rate is 0.06 and you expect the market return to be 0.125.  You can use the spreadsheet to solve the question: Exam 2 Spreadsheet.xlsx

You are considering two assets with the following characteristics. E(R1) = [x] E(σ1) = [y] w1 = 0.5 E(R2) = [q] E(σ2) =[z] w2 = 0.5 What will be the difference in the standard deviations of the two-stock portfolio if correlation change from  r1,2 = [p] to [o]? Do not round intermediate calculations. Round your answers for the difference in standard deviations of the two-stock portfolio to 4 decimal places. Include the negative sign if the answer is negative. Example -0.0466.  You can use the spreadsheet to solve the question:Exam 2 Spreadsheet.xlsx

Exhibit 7.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)   ​ Rates of Return Year RA Computer Market Index 1 13 17 2  9 15 3 -11  6 4 10  8 5 11 10 6  6 12       Refer to Exhibit 7.1. Compute the beta for RA Computer using the historic returns presented above.  You can use the spreadsheet to solve the question: Exam 2 Spreadsheet.xlsx

Assume that as a portfolio manager the beta of your portfolio is 0.85 and that your performance is exactly on target with the SML data under condition 1. If the true SML data is given by condition 2, how much does your performance differ from the true SML?   (1) RFR = 0.0475 Rm(proxy) = 0.0975 (2) RK = 0.0325 Rm(true) = 0.0845   You can use the spreadsheet to solve the question: Exam 2 Spreadsheet.xlsx

Exhibit 6.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)   Asset (A) Asset (B) E(RA) = 25% E(RB) = 15% (sA) = 18% (sB) = 11% WA = 0.75 WB = 0.25 COVA,B = -0.0009   Refer to Exhibit 6.2. What is the standard deviation of this portfolio?  You can use the spreadsheet to solve the question: Exam 2 Spreadsheet.xlsx

Exhibit 7.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)   ​ Return Proxy True ​ of Radtron Specific Index General Index Period (Percent) (Percent) (Percent) 1 10 12 15 2 12 10 13 3 -10 -8 -8 4 -4 -10 0     Refer to Exhibit 7.3. The average proxy return is  You can use the spreadsheet to solve the question: Exam 2 Spreadsheet.xlsx

Exhibit 8.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)   Davenport Corporation’s last dividend was $2.70, and the directors expect to maintain the historic 3 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 5 percent for the next three years and the stock will then reach $25 per share.   Refer to Exhibit 8.1. How much should you be willing to pay for the stock if you feel that the 5 percent growth rate can be maintained indefinitely and you require a 17 percent return?  You can use the spreadsheet to solve the question: Exam 2 Spreadsheet.xlsx