Directions: Answer the following questions on a separate document. Explain how you reached the answer
or show your work if a mathematical calculation is needed, or both. Submit your assignment using the
assignment link in the course shell. This homework assignment is worth 100 points.
Use the following information for questions 1 through 8:
The Goodman Industries’ and Landry Incorporated’s stock prices and dividends, along with the Market
Index, are shown below. Stock prices are reported for December 31 of each year, and dividends reflect
those paid during the year. The market data are adjusted to include dividends.

Goodman Industries 
Landry Incorporated 
Market index 

Year 
Stock price 
Dividend 
Stock price 
Dividend 
Includes 
Dividends 
2013 
$25.88 
$1.73 
$73.13 
$4.50 
17.49 
5.97 
2012 
22.13 
1.59 
78.45 
4.35 
13.17 
8.55 
2011 
24.75 
1.50 
73.13 
4.13 
13.01 
9.97 
2010 
16.13 
1.43 
85.88 
3.75 
9.65 
1.05 
2009 
17.06 
1.35 
90.00 
3.38 
8.40 
3.42 
2008 
11.44 
1.28 
83.63 
3.00 
7.05 
8.96 
1. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and
then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns
are calculated by subtracting the beginning price from the ending price to get the capital gain or
loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning
price. Assume that dividends are already included in the index. Also, you cannot calculate the
rate of return for 2008 because you do not have 2007 data.)
2. Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index.
(Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the
STDEV function in Excel.)
3. Estimate Goodman’s and Landry’s betas as the slopes of regression lines with stock return on the
vertical axis (yaxis) and market return on the horizontal axis (xaxis). (Hint: Use Excel’s SLOPE
function.) Are these betas consistent with your graph?
4. The riskfree rate on longterm Treasury bonds is 6.04%. Assume that the market risk premium is
5%. What is the required return on the market using the SML equation?
5. If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what
would be its beta and its required return?
6. What dividends do you expect for Goodman Industries stock over the next 3 years if you expect
you expect the dividend to grow at the rate of 5% per year for the next 3 years? In other words,
calculate D1, D2, and D3. Note that D0 = $1.50
7. Assume that Goodman Industries’ stock, currently trading at $27.05, has a required return of
13%. You will use this required return rate to discount dividends. Find the present value of the
dividend stream; that is, calculate the PV of D1, D2, and D3, and then sum these PVs.
8. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is the most you
should pay for it?
Use the following information for Question 9:
Suppose now that the Goodman Industries (1) trades at a current stock price of $30 with a (2) strike price of $35. Given the following additional information: (3) time to expiration is 4 months, (4) annualized risk free rate is 5% variance of stock return is 0.25.
9. What is the price for a call option using the BlackScholes Model?
Subject  Mathematics 
Due By (Pacific Time)  08/08/2014 12:00 am 
Tutor  Rating 

pallavi Chat Now! 
out of 1971 reviews More.. 
amosmm Chat Now! 
out of 766 reviews More.. 
PhyzKyd Chat Now! 
out of 1164 reviews More.. 
rajdeep77 Chat Now! 
out of 721 reviews More.. 
sctys Chat Now! 
out of 1600 reviews More.. 
sharadgreen Chat Now! 
out of 770 reviews More.. 
topnotcher Chat Now! 
out of 766 reviews More.. 
XXXIAO Chat Now! 
out of 680 reviews More.. 