24 Porter Inc\'s stock has an expected return of 10.75%, a beta of 1.0, and is i

Question

24 Porter Inc's stock has an expected return of 10.75%, a beta of 1.0, and is in equilibrium. If the risk-free rate is 5.00%, what is the market risk premium?

26 Mulherin's stock has a beta of 1.50, its required return is 8.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)

27 Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $75.50, what is its nominal (not effective) annual rate of return?

40 Whited Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.50% per year. The required rate of return on the stock, rmc052-1.jpg, is 11.50%. What is the stock's expected price 5 years from now?

Explanation / Answer

Mulherin's stock has a beta of 1.50, its required return is 8.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)

Beta                                                          1.50

Risk-free rate                                        4.30%

Required return on stock               8.75%, %

RPM = (rstock ? rRF)/beta                         3.31%

Required return on market = rRF + RPM =      7.61%

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