02 Jan Unida Systems has 4444
Q 1
The figure below shows the? one-year return distribution for RCS stock.? Calculate:
a. The expected return.
b. The standard deviation of the return.
ABCDE05101520253035Probability %A:-30% returnB:-20% returnC:0% returnD:20% returnE:30% return
?Note: Make sure to round all intermediate calculations to at least five decimal places.
Q 2
You bought a stock one year ago for $ 48.61$48.61 per share and sold it today for $ 59.24$59.24 per share. It paid a $ 1.63$1.63 per share dividend today.
a. What was your realized? return?
b. How much of the return came from dividend yield and how much came from capital? gain?
Q 3
Using the data in the following? table, calculate the return for investing in Boeing stock? (BA) from January? 2, 2008, to January? 2, 2009, and also from January? 3, 2011, to January? 3, 2012, assuming all dividends are reinvested in the stock immediately.
Historical Stock and Dividend Data for Boeing
Date
Price
Dividend
Date
Price
Dividend
?1/2/2008
?$86.6286.62??
?1/3/2011
?$66.4066.40??
?2/6/2008
79.9179.91
?$0.400.40
?2/9/2011
72.6372.63
0.420.42
?5/7/2008
84.5584.55
0.400.40
?5/11/2011
79.0879.08
0.420.42
?8/6/2008
65.4065.40
0.400.40
?8/10/2011
57.4157.41
0.420.42
?11/5/2008
49.5549.55
0.400.40
?11/8/2011
66.6566.65
0.420.42
?1/2/2009
45.2545.25
?1/3/2012
74.2274.22
Q 4
The last four years of returns for a stock are as? follows:
Year 1
Year 2
Year 3
Year 4
negative 4.1 %?4.1%
plus 28.1 %+28.1%
plus 11.8 %+11.8%
plus 3.5 %+3.5%
a. What is the average annual? return?
b. What is the variance of the? stock’s returns?
c. What is the standard deviation of the? stock’s returns?
?Note: Notice that the average return and standard deviation must be entered in percentage format. The variance must be entered in decimal format.
Q 5
Consider an investment with the following returns over 4? years:
Year
1
2
3
4
Return
5 %5%
16 %
16 %
19 %
a.What is the compound annual growth rate? (CAGR) for this investment over the 4? years?
b. What is the average annual return of the investment over the 4? years?
c. Which is a better measure of the? investment’s past? performance? If the? investment’s returns are independent and identically? distributed, which is a better measure of the? investment’s expected return next? year?
Q 6
Consider two local banks. Bank A has 8383 loans? outstanding, each for $ 1.0$1.0 ?million, that it expects will be repaid today. Each loan has a 3 %3% probability of? default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of $ 83$83 million? outstanding, which it also expects will be repaid today. It also has a 3 %3% probability of not being repaid. Calculate the? following:
a. The expected payoff of Bank A.
b. The expected payoff of Bank B.
c. The standard deviation of the overall payoff of Bank A.
d. The standard deviation of the overall payoff of Bank B.
Q 7
Suppose the market risk premium is
6 %6%
and the? risk-free interest rate is
6 %6%.
Using the data in the table? below, calculate the expected return of investing in
a.?Starbuck’s stock.
b.? Hershey’s stock.
c.? Autodesk’s stock.
Starbucks
Hershey
Autodesk
Beta
1.201.20
0.280.28
2.142.14
Why? don’t all investors hold? Autodesk’s stock rather than? Hershey’s stock?
Q 8
Suppose all possible investment opportunities in the world are limited to the five stocks listed in the table below. What does the market portfolio consist of? (what are the portfolio? weights)?
Stock
?Price/Share ($)
Number of Shares Outstanding? (millions)
A
99
10
B
1818
12
C
88
3
D
4848
1
E
4646
20
Q 9
In? mid-2012, Cisco Systems had a market capitalization of $ 106$106 billion. It had? A-rated debt of $ 16$16 billion as well as cash and? short-term investments of $ 47$47 ?billion, and its estimated equity beta at the time was 1.251.25.
a. What is? Cisco’s enterprise? value?
b. Assuming? Cisco’s debt has a beta of? zero, estimate the beta of? Cisco’s underlying business enterprise.
Q 10
Unida Systems has 4444 million shares outstanding trading for $ 10$10 per share. In? addition, Unida has $ 105$105 million in outstanding debt. Suppose? Unida’s equity cost of capital is 13 %?, its debt cost of capital is 8 %8%?, and the corporate tax rate is 36 %36%.
a. What is? Unida’s unlevered cost of? capital?
b. What is? Unida’s after-tax debt cost of? capital?
c. What is? Unida’s weighted average cost of? capital?
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