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1)
1). Calculate the expected return on stock of Gamma Inc.:
State of the economy Probability of the states Percentage returns
Economic recession 21%. -4.6%
Steady economic growth 42% 2.9%
Boom Please calculate it 8.0%
Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)
2). Calculate the expected standard deviation on stock:
State of the economy Probability of the states Percentage returns
Economic recession 22%. -1%
Steady economic growth 32% 7%
Boom Please calculate it 17%
Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)
3). John invested the following amounts in three stocks:
Security Investment Beta
Stock A $289,901 1.65
Stock B $678,320 1.88
Stock C $727,514 2.18
Calculate the beta portfolio.
Round the answers to two decimal places.
4). Green Company's common stock is currently selling for $50.43 per share. Last year, the company paid dividends of $4.96 per share. The projected growth at a rate of dividends for this stock is 5.03 percent. Which rate of return does the investor expect to receive on this stock if it is purchased today?
Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box).
5). Genetic Insights Co. purchases an asset for $12,526. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. Genetic Insights has a tax rate of 30%. The asset is sold at the end of six years for $4,904.
Calculate gain or loss on disposal.
Gain should be entered as a positive number. Loss should be entered as a negative number. Round the answer to two decimals.
Expert Solution
1). Expected return = 3.21%
2). Expected standard deviation = 7.21%
3). Portfolio beta = 1.97
4). Computation of the rate of return:-
Rate of return = (D1 / Current selling price) + Growth rate
= ($4.96*(1+5.03%)/$50.43) + 5.03%
= ($5.21 / $50.43) + 5.03%
= 10.33% + 5.03%
= 15.36%
5). Computation of the gain or loss on disposal:-
Book value = Cost of asset - Accumulated depreciation
= $12,526 - $12,526 * (14.29% + 24.49% + 17.49% + 12.49% + 8.93% + 8.93%)
= $12,526 - $10,850.02
= $1,675.98
Gain on disposal = Sale proceeds - Book value
= $4,904 - $1,675.98
= $3,228.02
Gain after tax = Gain on disposal * (1 - Tax rate)
= $3,228.02 * (1 - 30%)
= $2,259.61
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