Seattle Best Company common stock is currently selling for $40 per share. Securi

Question

Seattle Best Company common stock is currently selling for $40 per share. Security analysts at Goldman Sachs have assigned the following probability distribution to the price of (and rate of return on) Seattle Best stock one year from now:

Price

Rate of Return

Probability

$35

-30.0%

0.35

$45

-10.0%

0.35

$55

+10.0%

0.05

$65

+30.0%

0.25

Assuming that Seattle Best is not expected to pay any dividends during the coming year, determine the expected rate of return on Seattle Best stock.

         0.00%
                                         -30.00%
                                         +22.00%
                                         -6.00%

What is the value of a Verismo Company%u2019s bond that has a 12 percent coupon, pays interest semiannually, and has 20 years to maturity, if the required rate of return is 15 percent?           

       $767.58
                                         $1,015.20

                                         $912.22
                                         $811.08

Price

Rate of Return

Probability

$35

-30.0%

0.35

$45

-10.0%

0.35

$55

+10.0%

0.05

$65

+30.0%

0.25

Explanation / Answer

-6%

$912.22

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