1 .de x, x 2. Suppose you have $10,000 from your family and you would like to in

Question

1 .de x, x 2. Suppose you have $10,000 from your family and you would like to invest in a stock portfolio. Your choices are stock A with an expected return of 13% and Stock B with an expected return of 8%. Your goal is to create a portfolio with an expected return of 12.4 percent. All money must be invested. How much will you invest in stock A? 3. Suppose BHP pays a constant dividend of $0.60 a share. The company announced today that it will continue to pay the dividend for another 2 years after which time all dividends will cease. What is one share of BHP stock worth today if the required rate of return is 16.5%? 4. While shopping in the Mexican market, you find that limes cost 11 pesos each. You remember that

Explanation / Answer

Answer 2 Let weight of stock A=Wa then weight of stock B=1-Wa Expected return of portfolio=weight of asset A* return of asset A + weight of asset B *return of asset B 12.4=13x+8(1-x) 12.4=13x+8-8x 4.4=5x x= 4.4/5 x= 88.00% Weight of stock B 12.00% Investment in A=88% of 10000 Investment in A=8800 cash flow Present Value Answer 3 Dividend after 1 year 0.6 0.515021 Dividend after 2 year 0.6 0.442079 value of share 0.9571

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