Investing in one of two well-diversified portfolios

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1. Nike, Inc. just paid a dividend of $0.65 a share. Dividends are expected to grow at a rate of 10% per year for the next two years and then at a rate of 2.5% thereafter. If your required rate of return is 8%, what is the most that you should be willing to pay for a share of Nike stock today? 

2. You wish to hold a two-asset portfolio whose risk you want to be only 3/4 as risky as the market. If your portfolio consists of a risky asset that has 110% of the average market risk and T-bills, what percent of your portfolio should be invested in the risky asset?

  • A.32% B.44%  C.56%  D.68%

3. If the risk-free rate is 2% and the expected returnon the market is 10%, according to CAPM, a stock that is only half as risky as the market on average would have an expected return of _____?

4. You are considering investing in one of two well-diversified portfolios. Portfolio A has an expected return of 8% and a beta of 0.85 while Portfolio B has an expected return of 12% and a beta of 1.95. Assuming that you are a rational risk-averse investor and the risk-free rate is 3%, which of the two portfolios should you choose and why?

Reference no: EM131076467

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