Questions Uploads

A share

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Question

A share of stock with a beta of .76 now sells for $51. Investors expect the stock to pay a year-end dividend of

$3. The T-bill rate is 3%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what must be investors’ expectation of the price of the stock at the end of the year? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

  Stock price $  

 
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What should the auditor do if the auditor were to come across something that seems unethical or illegal during the course of the audit work?

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What should the auditor do if the auditor were to come across something

that seems unethical or illegal during the course of the audit work?

 
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cash flows

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Question

You are considering acquiring a firm that you believe can generate expected cash flows of $18,000 a year forever.

However, you recognize that those cash flows are uncertain.

a. Suppose you believe that the beta of the firm is 1.2. How much is the firm worth if the risk-free rate is 3% and the expected rate of return on the market portfolio is 7%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  Value of the firm $  

b. By how much will you overvalue the firm if its beta is actually 1.3? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  Overvaluation $  

 
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law firm

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Question

We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It prospers

in recessions when other firms are struggling. Consequently, its beta is negative, −.2. 

a. If the interest rate on Treasury bills is 3% and the expected return on the market portfolio is 13%, what is the expected return on the shares of the law firm according to the CAPM? (Enter your answer as a whole percent.)

  Expected return %  

b. Suppose you invested 70% of your wealth in the market portfolio and the remainder of your wealth in the shares in the law firm. What would be the beta of your portfolio? (Round your answer to 2 decimal places.)

  Portfolio beta  

 
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