An investor has put money in four stocks in the dollar amounts indicated and wit

Question

An investor has put money in four stocks in the dollar amounts indicated and with betas specified. What is the portfolio beta? Stock A $3,000 with a beta of 1.19; stock B $7,054 with a beta of 1.06; stock C $5,408 with a beta of 0.95; and stock D $7,329 with a beta of 1.28. Show your answer rounded to two decimal points.

Ranyard's beta is 1.04, and the last dividend per share paid was $3.92. The market risk premium is estimated to be 7.82%, and the real rate of interest is 2.18%. The liquidity risk premium is 0.9%. Analysts expect the company to grow at a rate of 3.61% indefinitely. The risk free rate is 2.79%. What should be Ranyard's current stock price? Round your answer to two decimal places.

Explanation / Answer

1) Stock Investment percentage of Portfolio Beta Beta times % of Portfolio A                         3,000 13% 1.19 0.16 B                         7,054 31% 1.06 0.33 C                         5,408 24% 0.95 0.23 D                         7,329 32% 1.28 0.41 TOTAL                       22,791 100% 1.12 Beta of the portfolio is 1.12 2) Stock Price = (dividend now*growth rate)/ (required return on equity - growth rate) Expected return on the share = Risk free + (beta*risk premium) Expected return on the share= 2.79+(1.04*0.9)   = 3.73 Stock Price (3.92*3.61)/(3.726-3.61)    = 121.99

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