1. The Tapley Tank Company's last dividend was $2.00. The dividend growth rate is expected to be constant at 25% for 3 years, after which dividends are expected to grow at a rate of 7% forever. The Tapley Tank Company's beta is 0.90, the return on the market is currently 11.83 percent, and the risk-free rate is 3.5 percent. What should be the current common stock price of the company?
2. A bond that matures in 11 years has an annual coupon rate of 8 percent with interest paid annually. The bond’s face value is $1,000 and its yield to maturity is 7.5 percent. The bond can be called 3 years from now at a price of $1,060. What is the bond’s yield to call?
3. A stock has an expected return of 12.25 percent. The beta of the stock is 1.15 and the risk-free rate is 5 percent. What is the market risk premium? What is the return on market?
4. An investor is forming a portfolio by investing $50,000 in stock A which has a beta of 1.50, and $25,000 in stock B which has a beta of 0.90. The return on the market is equal to 12 percent and Treasury bonds have a yield of 4 percent. What is the required rate of return on the investor's portfolio?
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