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5. Total Construction sells a share of common stock for $28.16. Annual dividends next year is expected to be $1.35 and has over the years been increasing its dividends by 3% annually. What is the expected rate of return on the companys stock if it expects to continue the same growth pattern in the coming years?

6. Grenlecs preferred stock is selling for $25 in the market and pays $2.5 in dividends. What is the expected rate of return on the stock? If your required rate of return is 12 percent, what is the fair value of the stock for you? Should you acquire the stock?

7. Given the following information about the Walmarts stock and the market.

State of the Economy	Probability	Return
Boom	0.50	0.20
Normal	0.25	0.15
Bust	0.25	0.12

The risk-free rate of interest is 3 percent, the return on the market is 15 percent, and the beta of the firm is 0.8. What is the expected rate of return for the stock? Calculate the required rate of return for the stock. Should the stock be purchased?

8. Use the following table to answer the following questions

Asset	Return	Beta	Proportion
A	10%	0.75	0.2
B	12%	1	0.2
C	14%	1.25	0.4

a) What is the expected return for the portfolio? b) Calculate the portfolio beta. c) In the context of the entire portfolio, which firm is most risky? d) In the context of a single asset, which firm is most risky?

9. If the beta of an asset is 1.25, the risk-free rate of interest is 4%, and the return on the market portfolio is 12%, what is the required return on the asset? What is the market risk premium for the asset?

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