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(Answered) Risk Return, and the oportunity Cost of capital


See attached;YEAR STOCK MARKET RETURN T-BILL RETURN;2003 31.64 1.02;2004 12.62 1.2;2005 6.38 2.98;2006 15.77 4.8;2007 5.62 4.66;13. Risk Premiums and Discount Rates. Top hedge fund manager Diana Sauros believes thata a stock with the same market risk as the S and P 500 will sel at year-end at a price of $50.;The stock will pay a dividend at year-end of $2. What price should be willing to pay for the stock today? (Hing: Start by checking today's 1-year Treasury rates);14. Scenario Analysis. The common stock of Leaning Tower of Pita, Inc., a restaurant chain, will generate the following payoffs to investors next year;Dividend Stock Price;Boom $5 $195;Normal Economy 2 100;Recession 0 0;The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita Shareholder.;Assume for simplicity that the three possible sates of the economy are equally likely. The stock is selling today for $80;22. Risk and Return. A stock will provide a rate of return of either 20% or +28%;a. If both possibilities are equally likely, calculate the expected return and standard deviation.;b. If Treasury bills yield 4% and investors believe that the stock offer a satisfactory expected return, what must the market risk of the stock be?;Vale of reserves per Barrel Value of Reserves, 50 Million Barrels value of Dryholes;Boom $4 200,000,000 0;Normal economy 5 250,000,000 0;Recession 6 300,000,000 0;Is Sassafras Oil a Risky investment for a diversified investor in the stock market-compare, say, to the stock of Leaning;Tower of Pita, described in Practice Problem 14? Explain.;Attachments;Serie-6.xlsx
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Risk Return, and the oportunity Cost of capital

 


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