Essay
The following information is available in general and about investments in stocks J and K.
The market return (kM)= 9%
The risk free rate (kRF)= 5%
Stock J's beta = 0.8
Expected constant growth rate for Stock J = 6%
Investment in Stock J = $80,000
Stock K's beta = 1.4
Expected constant growth rate for Stock K = 7%
Investment in Stock K = $120,000
a. What are the expected returns on Stock J and Stock K individually?
b. What is the expected return on the portfolio?
c. If Stock K just paid a dividend of $2.50, what is Stock K's intrinsic value?
Correct Answer:
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a. kJ = kRF + (kM-kRF)bJ = 5% + (9% -...View Answer
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