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Author Question: Fred's Frankfurters has an expected return of 18.9. The market has an expected return of 13.5. If ... (Read 224 times)

cartlidgeashley

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on: Jul 10, 2018
Fred's Frankfurters has an expected return of 18.9. The market has an expected return of 13.5. If the risk free rate is 5, calculate the Treynor Index. (Round to two decimal places)
 
  A) 13.90
  B) 5.40
  C) 5.18
  D) 8.48
  E) 7.50

Question 2

You want to invest in a stock that pays 3.50 annual cash dividends for the next six years. At the end of the six years, you will sell the stock for 22.50. If you want to earn 12.5 on this investment, what is a fair price for this stock if you buy it to
 
  A) about 25.94
  B) about 25.29
  C) about 12.45
  D) about 14.25


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ergserg

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Reply #1 on: Jul 10, 2018
Answer to Question 1

D

Answer to Question 2

Answer: B
Explanation: B) The fair price is the present value of the selling price plus the present value of the dividend stream. Thus, today's price (P) = (future price  PVIF) + (dividend stream  PVIFA)
= (22.50  0.493270) + (3.5  4.053838) = 11.099 + 14.188 = 25.287, or about 25.29.
MODE = END
INPUT 6 12.5 ? -3.5 -22.5
KEY N I/Y PV PMT FV
CPT 25.29


cartlidgeashley

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Reply 2 on: Jul 10, 2018
Great answer, keep it coming :)

bbburns21

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  • Posts: 336
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

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