43) You consider buying a share of stock at a price of $13. The stock is expecte

Question

43) You consider buying a share of stock at a price of $13. The stock is expected to pay a dividend of $1.42 next year, and your advisory service tells you that you can expect to sell the stock in 1 year for $16. The stock's beta is 1.8, rf is 14%, and E[rm] = 24%. What is the stock's abnormal return?

a) 11%     b) 2%       c)18%    d) 0%

46) You have a $54,000 portfolio consisting of Intel, GE, and Con Edison. You put $21,600 in Intel, $13,600 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta?

a) 0.808      b) 1.050       c) 1.365      d)0.995

52) The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12%, then you should _________.

a) sell short stock X because it is underpriced

b) sell short stock X because it is overpriced

c) buy stock X because it is overpriced

d) buy stock X because it is underpriced

Explanation / Answer

43. b) 2%

46. 1.050      

52. sell short stock X because it is overpriced

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