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  3. 1. you are considering the purchase of a new stoc

1. You are considering the purchase of a new stock. The stock is forecasted...

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Accounting

1.

You are considering the purchase of a new stock. The stock is forecasted to pay a dividend next year (D1) of $2.34. In addition, you forecast that the firm will have a stable growth rate of 2% for the foreseeable future. The current risk-free rate of return is 4%. The expected return on the market is 10.5% and the standard deviation for the market is 13%. The stock has a correlation to the market of 0.45. Finally, the stock has a standard deviation of 57%.

Given this information, what is the value of the stock? (Hint -- it is a constant growth situation)

2. Consider two stocks. Stock A has a standard deviation of 20% and stock B has a standard deviation of 60%. The stocks have a correlation of 0.07. You plan to invest $6,108 into stock A and $9,689 into stock B. What is the standard deviation of your two stock portfolio? (round weights to 3 decimal places and final answer to 2 decimal places). Write your answer out without the % sign, but not in decimal so that 9.22% would be 9.22 (not 0.0922 or 9.22%)

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