The stock of Sedly Inc. is expected to pay the following dividends

#2. The stock of Sedly Inc. is expected to pay the following dividends:

Year

1 2 3 4

Dividend $2.25 $3.50 $1.75 $2.00

At the end of the fourth year its value is expected to be $37.50. What should Sedly sell for today if the return on stocks of similar risk is 12%?

#5. The Spinnaker Company has paid an annual dividend of $2 per share for some time. Recently, the board of directors voted to grow the dividend by 6% per year from now on. What is the most you would be willing to pay for a share of Spinnaker if you expect a 10% return on your stock investments?

#17 Blackstone Corporation’s $7 preferred was issued five years ago. The risk-appropriate interest rate for the issue is currently 11%. What is this preferred selling for today?

11. Laurel Wilson has a portfolio of five stocks. The stocks’ actual investment performance last year is given below along with an estimate of this year’s performance.

Compute the actual return on Laurel’s overall portfolio last year and its expected return this year.

13. The stocks in Problem 11 have the following betas

Stock Beta

A 1.1

B 0.6

C 1.0

D 1.6

E 0.8

Calculate Laurel’s portfolio beta for last year and for this year. Assume that the changes in investment (value) come from changing stock prices rather than buying and selling shares. What has happened to the riskiness of Laurel’s portfolio? Should she be concerned?

· 17. You have recently purchased stock in Topical Inc. which has returned between 7% and 9% over the last three years. Your friend, Bob, has criticized your purchase and insists that you should have invested in Combs Inc., as he did, because it’s been returning between 10% and 12% in the last three years. Bob knows nothing about financial theory. Topical’s beta is 0.7 and Comb’s is 1.2. Treasury bills are currently yielding the risk-free rate of 4.2%, while the stock market is returning an average rate of 9.4%.

a. What return should you expect from Topical? What return should Bob expect from Combs?

b. Write a few work explaining to Bob why these expected returns aren’t the whole story.

21. The Framingham Company expects to grow at 4% indefinitely. Economists are currently asserting that investment opportunities in short-term government securities (Treasury bills) are readily 440441available at a risk-free rate of 5%. The stock market is returning an average rate of 9%. Framingham’s beta has recently been calculated at 1.4. The firm recently paid an annual dividend of $