Business Finance

FINC 2101
Class exercise
Fall 2023

Question 1
Suppose that you are considering investing in a PORTFOLIO A of two stoc
weights of 20% and 80 % respectively. Your research results are summar
VARIANCE /COVARIANCE Matrix.What is the standard deviation of this po
average return of the portfolio is 0.456 what is the coefficient of variation

Question 2
A stock that pays a constant dividend of $1.50 forever and currently s
is the required rate of return?

Question 3
ABC Company’s preferred stock is selling for $30 a share. If the
required return is 8%, what will the dividend be two years from now?

Question 4
LON’s stock is currently selling for $40.00. The expected dividend one
and the required return is 13%. What is this firm’s dividend growth rate a
constant dividend growth model is appropriate?

Question 5
Mc Gonigal’s Meats, Inc. currently pays no dividends. The firm plans to
dividends at the end of 3 years from today. The first dividend will be $1.5
grow at 6% per year thereafter. Given a required return of 14%, what wo
stock today?

Question 6
Cargo Point, Inc. has a beta of 1.10. The risk-free rate of interest is curren
required return on the market portfolio is 13%. The company plans to pa
in the coming year and anticipates that its future dividends will increase
consistent with that of the 2019–2021 period:
Estimate the value of Cargo Point, Inc. stock.
in the coming year and anticipates that its future dividends will increase
consistent with that of the 2019–2021 period:
Estimate the value of Cargo Point, Inc. stock.
e

OLIO A of two stocks OTB and OTC with

esults are summarized in the following OTB
deviation of this portfolio? If the OTB 0.565
fficient of variation of the portfolio.
OTC 0.308

ver and currently sells for $10.71. What

hare. If the
o years from now?

cted dividend one year from now is $2

dend growth rate assuming the

s. The firm plans to begin paying

vidend will be $1.50 and dividends will
n of 14%, what would you pay for the

f interest is currently 6%, and the

mpany plans to pay a dividend of $2.91
ends will increase at an annual rate
ends will increase at an annual rate

Year Dividend
2019 2.25
2020 2.45
2021 2.67
OTC
0.308
0.876
Q5
0.2 0.8
OTB OTC
0.2 OTB 0.565 0.308
0.8 OTC 0.308 0.876

OTB OTC
OTB 0.0226 0.04928
OTC 0.04928 0.56064

Variance of the por 0.6818

Standard Deviation0.825711814
Mean of the portfo 0.456 given
CV of the portfolio 1.810771522

Q6

D 1.5
PV 10.71
PV D/rr
rr D/PV
Required ra 0.140056022409 0.14

Q7
D ?
PV 30
RR 0.08
PV D/rr
D PV*rr
D 2.4 1 In two years also 2.4

Q8
D1 2
rr 0.13
PV 40

40 2/0.13-g
solve for g
5.2
3.2 40g
0.08 g

Q9
d1 0
d2 0
d3 1.5 1.012457274 PV1
19.875
PV 13.41505888452
PV 14.42751615882

Q10

2019 2.25
2020 2.45 0.088888889
2021 2.65 0.081632653
0.085260771

Beta 1.1
rf 6%
rm 13%
rr 0.137
d1 2.91
56.243590305474