1.

Suppose Netflix, Inc., has a beta of 3.92. If the market return is expected to be 12.40 percent and the risk-free rate is 5.00 percent, what is Netflix' risk premium? (Round your answer to 2 decimal places.) |

Netflix' risk premium | % |

2.

You own $19,432 of Human Genome stock that has an assumed beta of 3.76. You also own $10,063 of Frozen Food Express (assumed beta = 1.88) and $5,205 of Molecular Devices (assumed beta = 0.60). |

What is the beta of your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places.) |

Portfolio beta | |

3.

Compute the expected return given these three economic states, their likelihoods, and the potential returns: |

Economic State | Probability | Return | |||

Fast growth | 0.20 | 55 | % | ||

Slow growth | 0.58 | 22 | |||

Recession | 0.22 | –33 | |||

Expected return | % |

4.

If the risk-free rate is 7.00 percent and the risk premium is 8.0 percent, what is the required return? |

Required return |
% |

5.

The average annual return on an Index from 1986 to 1995 was 13.80 percent. The average annual T-bill yield during the same period was 5.10 percent. |

What was the market risk premium during these ten years? (Round your answer to 2 decimal place.) |

Average market risk premium | % |

6.

Suppose Universal Forest’s current stock price is $44.50 and it is likely to pay a $0.55 dividend next year. Since analysts estimate Universal Forest will have a 8.8 percent growth rate, what is its required return? |

Required return |
% |

7.

You have a portfolio with a beta of 1.69. What will be the new portfolio beta if you keep 86 percent of your money in the old portfolio and 14 percent in a stock with a beta of 0.96? |

New portfolio beta | |

8.

You have assigned the following values to these three firms: |

Price | Upcoming Dividend | Growth | Beta | ||||||||||||

Estee Lauder | $ | 48.00 | $ | 0.70 | 8.70 | % | 0.97 | ||||||||

Kimco Realty | 39.00 | 1.69 | 13.00 | 1.36 | |||||||||||

Nordstrom | 7.00 | 0.80 | 7.00 | 1.09 | |||||||||||

Assume that the market portfolio will earn 15.40 percent and the risk-free rate is 4.40 percent. |

Compute the required return for each company using both CAPM and the constant-growth model. |

CAPM | Constant-growth model | |

Estee Lauder required return | % | % |

Kimco Realty required return | % | % |

Nordstrom required return | % | % |

9.

Hastings Entertainment has a beta of 0.39. If the market return is expected to be 15.60 percent and the risk-free rate is 7.60 percent, what is Hastings’ required return? |

Hastings’ required return | % |

10.

Nanometrics, Inc., has a beta of 3.21. If the market return is expected to be 10.20 percent and the risk-free rate is 4.20 percent, what is Nanometrics’ required return? |

Nanometrics’ required return | % |

Subject | Business |

Due By (Pacific Time) | 10/30/2014 12:00 am |

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