the accompanying diagram shows the demand the accompanying diagram shows the dem
ID: 2792243 • Letter: T
Question
the accompanying diagram shows the demand the accompanying diagram shows the demand the accompanying diagram shows the demand the accompanying diagram shows the demand the accompanying diagram shows the demand Assume the reward-to-risk ratio is 6.8 percent and the risk-free rate is 5.3%, compute the expected return on a risky asset if the beta of that asset is 1.03? 2. Suppose you have $10,000 from yourfamily and you would like to invest in a stock portfolio. Your choices are Stock A with an expected return of 13% and stock B with an expected return of 8%. Your goal is to create a portfolio with an expected return of 12.4 percent.All money must be invested. Horw much will you invest in stock A? 3. Suppose BHP pays a constant dividend of $0.60 a share. The company announced today that it will continue to pay the dividend for another 2 years after which time all dividends will cease. What is one share of BHP stock worth today if the required rate of return is 16.5%? 4. While shopping in the Mexican market, you find that limes cost 11 pesos each. You rememberthat back home, they cost 80 cents each. If the Purchasing PowerParity Theory holds, what is the rate of exchange?Explanation / Answer
1)
Reward to risk ratio = (Expected return-Risk free rate)/Beta
6.80% = (Expected return-5.30%)/1.03
Expected return-5.30% = 7.004%
Expected return = 12.30%
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