How will increases in the following items affect residual income? Increase in Sales Increase in Equipment A. Decrease RI Decrease RI B. Decrease RI Increase RI C. Increase RI Decrease RI D. Increase RI Increase RI

To reduce risk as much as possible, you should combine assets that have one of the following correlation relationships?

Harvey-Danielson’s stock is currently trading at a market price of $44.48.  The company just paid an annual dividend (D0) of $1.47.  The current risk-free rate is 2.98% annually, and you can expect a market return of 11%.  The stock’s Beta is 0.9.  What is the market’s implied growth expectation for Harvey-Danielson’s dividends if all market participants use a constant-growth dividend discount model? Report your answer in decimal form and round to at least 4 decimals.

Paul Corporation is a publicly traded stock that has consistently paid an annual dividend to its investors.  In fact, Paul Corporation has historically grown its dividends by exactly 2% every year.  The company just paid an annual dividend of $4.50, and you are looking to buy the stock and hold it for the foreseeable future.  The stock has a Beta of 1.76, and the annual market return is 12%.  The current risk-free rate is 5%.   Based on the information above, how would you best characterize the risk level of Paul Corporation stock?

Consider a world with risky assets and a risk-free rate.  The optimally risky portfolio has a Sharpe Ratio of 1.2, an expected return of 14%, and a standard deviation of 8%.  An investor would like to have a portfolio that returns exactly 13.2% and has a standard deviation of 7% or less.  Does such a portfolio exist in this world?

You hold the following two stocks:  40% invested in Stock A and 60% invested in Stock B.   Company Beta Stock A 1.2 Stock B 0.8 What is the portfolio Beta? Round to two decimal places.

The Fish House increases its dividend each year.  The next annual dividend is expected to be $2.21 a share.  Future dividends will increase by 3.5% annually.  What is the current value of this stock if the discount rate is 12%? Round to the nearest cent.

What are the key assumptions of the Gordon Growth Model? Select all that apply.

The stock of ABC, Inc. has a beta of 0.94.  The market risk premium is 7.1%, and the expected market return is 10.3%.  What is the expected return on ABC, Inc.’s stock? Express as a percentage and round to two decimal places.  Report your answer in decimal form and round to at least 4 decimals.

Consider the following 3-State Economy.  What is the expected return for the stock in this example?   Report your answer in decimal form and round to at least 4 decimals. State of Economy Probability Expected Return Boom 0.05 16% Normal 0.45 7% Recession ? -12%