A preferred stock from Duquesne Light Company (DQUPRA) pays $3.55 in annual dividends. If the required return on the preferred stock is 7.7 percent, what is the value of the stock?Explain why the grow

Instructions

Answer the following questions and complete the following problems, as applicable:

You may solve the following problems algebraically, or you may use a financial calculator. If you choose to solve the problems algebraically, be sure to show your computations. If you use a financial calculator, show your input values.

•Question 1:

"FedEx Corp stock ended the previous year at $103.39 per share. It paid a $0.35 per share dividend last year. It ended last year at $107.69. If you owned 100 shares of FedEx, what was your dollar return and percent return?"

Explain why a percentage return can be more useful than a dollar return.

•Question 2:

"Rank the following three stocks by their level of total risk, highest to lowest. Baker Co. has an average return of 13 percent and standard deviation of 26 percent. The average return and standard deviation of Able Co. are 15 percent and 34 percent; and of Catco Co. are 9 percent and 19 percent."

Describe the components of the standard deviation formula.

•Question 3:

"Rank the following three stocks by their risk-return relationship, best to worst. Baker Co. has an average return of 13 percent and standard deviation of 26 percent. The average return and standard deviation of Able Co. are 15 percent and 34 percent; and of Catco Co. are 9 percent and 19 percent."

◦Before solving this problem, calculate the coefficient of variation. Show the coefficient of variation you have calculated for each stock.

Explain how the coefficient of variation acts as a trade-off between risk and return.

•Question 4:

"Year-to-date, Oracle had earned a −1.34 percent return. During the same time period, Valero Energy earned 7.96 percent and McDonald's earned 0.88 percent. If you have a portfolio made up of 10 percent Oracle, 45 percent Valero Energy, and 45 percent McDonald's, what is your portfolio return?"

Explain the role of weights in determining portfolio return.

•Question 5:

"If the risk-free rate is 2 percent and the risk premium is 7 percent, what is the required return?"

Distinguished-level: Identify which financial security's return is typically considered the risk-free rate.

Question 6:

"The average annual return on a broad market index over a ten year period was 13.5 percent. The average annual T-bill yield during the same period was 2.5 percent. What was the market risk premium during these 10 years?" (Cornett, Adair, & Nofsinger, 2016).

Define, in your own words, the term, market risk premium.

Question 7:

"Hastings Entertainment has a beta of 0.75. If the market return is expected to be 12 percent and the risk-free rate is 3 percent, what is Hastings' required return?"

Use the capital asset pricing model to calculate Hastings' required return.

Recalculate the required return with a change to beta, and explain the effect of a 1.0 increase in beta on the subsequent amount of change in the required return.

Question 8:

"Calculate the beta of a portfolio comprised of the following items: (a) Rigid Steel stock, which has a beta of 2.0 and comprises 30 percent of your portfolio, (b) Vega Inc. stock, which has a beta of 1.0 and comprises 30 percent of your portfolio, and (c) Polaris Electric stock, which has a beta of 0.25 and comprises 40 percent of your portfolio."

State whether this portfolio has less risk, equal risk, or more risk, compared to the overall market.