Question

1. Tangshan Antiques has a beta of 1.40, the annual risk-free rate of interest is currently 10 percent, and the required return on the market portfolio is 16 percent. The firm estimates that its future dividends will continue to increase at an annual compound rate consistent with that experienced over the 2016-2019 period.

Year 2016 2017 2018 2019 Dividend $2.70 2.95 3.25 3.40

Estimate the value of Tangshan Antiques stock at the end of 2019. After the 2019 dividend has been paid. Round your final answer to two decimal places.

2. The standard deviation of the returns for asset A is ________. Enter your answer as precent rounded to 1 decimal, do not include the percent sign.

3. Given the returns of two stocks J and K in the table below over the last 4 years. Find the standard deviation of holding a portfolio of 40% of stock J and 60% in stock K over the last 4 years. Enter your answer as a percent, round to one decimal, do not include the % sign.

​	Stock J	Stock K
2015	10%	9%
2016	12%	8%
2017	13%	10%
2018	15%	11%

Answer 1

1) As per CAPM Rf Rm Risk free Rate Return on market Ке Rftbeta*(Rm-Rf) 0.10+1.40*(0.16-0.10) 0.184 18.40% Cost of Equity Calculation of Growth rate Growth rate of Dividends (3.40/2.70) 1.259259 1.2959259 is lies at 8% for 4th year and future annuity table So Growth rate is 8% Growth rate Value of Stock DO*(1+g)/(ke-g) 3.4*(1+0.08)/(0.184-0.08) $ 35.31 3.4 Dividend present 0.08 Growth rate 0.184 Cost of Equity