David is interested in investing in Hong Kong and will set up a portfolio worth

Question

David is interested in investing in Hong Kong and will set up a portfolio worth $100,000. He received the following financial information and works out the investment plan.

a) Tong Tong Company paid a dividend of $2.50 and announced that the next dividend would be increased 6%. Currently, the market price of the company is $55 and it is forecast to be $65 one year from now. What is the expected return on HK Textile Company stock? (Your answer should be to two decimal places.)

b) The market price of the BB Industrial Group nowadays is $30 and it has just paid a dividend of $1.25 on common stock. If the group maintains a constant dividend growth rate of 4.5% in future, what is the expected return of the BB Industrial Group? (Answer should be to two decimal places.) c) David’s portfolio will only cover the Tong Tong Company and BB Industrial Group. He will first subscribe to 1,000 shares of the Tong Tong Company, and then the remaining portfolio is BB Industrial Group share(s) only. Betas of the Tong Tong Company and BB Industrial Group are 1.2 and 0.6, respectively. Estimate Frank’s portfolio beta and return based on your answers in (a) and (b). (Answer should be to two decimal places.)

Explanation / Answer

David is interested in investing in Hong Kong and will set up a portfolio worth

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