Author Question: The risk-free rate of return is 3 and the expected return on the market portfolio is 14. Oklahoma ... (Read 129 times)

mia · **on:** Jul 10, 2018

The risk-free rate of return is 3 and the expected return on the market portfolio is 14. Oklahoma
Oilco has a beta of 2.0 and a standard deviation of returns of 26. Oilco's marginal tax rate is 35.

Analysts expect Oilco's net income to grow by 12 per year for the next 5 years. Using the capital
asset pricing model, what is Oklahoma Oilco's cost of retained earnings?
A) 18.6 B) 21.2 C) 25.0 D) 22.8

Question 2

ACME, Inc. expects its current annual 2.50 per share common stock dividend to remain the same
for the foreseeable future. Therefore, the value of the stock to an investor with a required return of
12 is

A) 18.33. B) 30.00. C) 3.00. D) 20.83.