d unable to determina 4 Sustainable growth is the rate at d is required to attra

Question

d unable to determina 4 Sustainable growth is the rate at d is required to attract shareholders ACompanyt s15% Company has a beta of o 66 if the interest rate on Treasury bas is 5% and expected seturn on market portfolio a, 15% 5.1% c.8.3% is 1 d. 11.6% sells for $80 and gave a dividend of 53.30 A stock is selling today for $72 per share. At the end of the year, n What is the rate of return for this stock? b. c. d. 15.7% 16.0% 18.3% 2012, the market as a whole was up 12.5%, market risk premium is 8.5%, what is the risk free return? n a. 18.5% b. 15.0% c.4.0% d. 1.5% ulate the expected return of a stock with a beta of 0.85 if the risk premium is 7% and Treasury Bills ing 1%. 5.6% 7.0% a. b. d. 8.0% s the company cost of capital? a. Minimal acceptable rate of return for a project b. Yield to maturity c. The expected rate of return demanded by shareholders d. How much the company would be required to pay for a bank loan he market portfolio is 1.0. True False

Explanation / Answer

Question 13 is not clear. Image is cut from above. Hence, questions from 14 to 18 have (first five), have been answered.

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Question 14)

Without issuing shares or changing its debt ratio (which is Option A)

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Details Provided Below:

The sustainable growth rate indicates the growth (in sales and assets) that can be maintained by the company without selling any new equity or without changing the composition of its current capital structure. Beyond this rate, the company will be required to borrow funds to support its growth.

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Question 15)

The expected return on the stock can be calculated with the use of following formula (CAPM):

Expected Rate of Return = Risk Free Rate (Treasury Bills) + Beta*(Market Return - Risk Free Rate)

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Using the values provided in the question, we get

Expected Rate of Return = 5 + .66*(15 - 5) = 11.60% (which is Option D)

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Question 16)

The formula for calculating rate of return would comprise of capital gain and dividend. The formula is:

Rate of Return = (Closing Price - Opening Price + Dividend)/Opening Price*100

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Using the values provided in the question, we get

Rate of Return = (80 - 72 + 3.30)/72*100 = 15.7% (which is Option B)

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Question 17)

The risk free return can be calculated with the use of following formula:

Risk Free Return = Market As a Whole - Market Risk Premium

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Using the values provided in the question, we get

Risk Free Return = 12.5% - 8.5% = 4% (which is Option C)

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Question 18)

The expected return on the stock can be calculated with the use of following formula (CAPM):

Expected Rate of Return = Risk Free Rate (Treasury Bills) + Beta*(Market Return - Risk Free Rate)

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Using the values provided in the question, we get

Expected Rate of Return = 1 + .85*7 = 7.0% (which is Option B)

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