Part 1: Southern Home Cookin\' just paid its annual dividend of $.70 a share. Th

Question

Part 1: Southern Home Cookin' just paid its annual dividend of $.70 a share. The stock has a market price of $32 and a beta of 0.8. The return on the U.S. Treasury bill is 4 percent and the market risk premium is 12 percent. What is the cost of equity? A) 17.20 percent B) 9.64 percent C) 11.07 percent D) 15.32 percent E) 13.60 percent Part 2: A stock has returns of 2 percent, 19 percent, -24 percent, and 17 percent for the past 4 years. Based on this information, what is the 95 percent probability range for any one given year? A) -25.0 to 35.3 percent B) -8.6 to 12.1 percent C) -36.2 to 43.2 percent D) -56.0 to 63.0 percent E) -16.3 to 23.3 percent

Explanation / Answer

1) cost of equity = 4% + .8*(12%) =13.60% E) 13.60 percent 2)mean = (2+ 19-24+17)/4=3.5% B) -8.6 to 12.1 percent

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