# GE stock, Hewlett Packard (HPQ), Georgia Pacific

1. GE stock has a beta of 1.2 and a standard deviation of 18% per year. The market portfolio has an expected return of 11% and a standard deviation of 15% per year. If the risk free rate of return is 3% what is the expected return on GE stock according to the CAPM.

2. Hewlett Packard (HPQ) has a constant rate of growth in dividends and earnings of 6% and a fixed dividend payout ratio of 40%. Last year, earnings were $6.40 per share. HPQ's share price is $70. What is the expected rate of return?

3. For the fiscal year just ended, Georgia Pacific announced earnings of $5 per share and paid dividends of $1.25. Next year, earnings per share are forecasted to be $5.80 and dividends $1.40 per share. Analysts expect that the current, trailing p/e ratio of 16 will expand to the historical average of 18 next year. If they are correct, what is the expected rate of return (1year)?

https://brainmass.com/business/capital-asset-pricing-model/ge-stock-hewlett-packard-georgia-pacific-178901

#### Solution Preview

1. GE stock has a beta of 1.2 and a standard deviation of 18% per year. The market portfolio has an expected return of 11% and a standard deviation of 15% per year. If the risk free rate of return is 3% what is the expected return on GE stock according to the CAPM.

Kj = Rf + B(Km - Rf)

Kj = 3% + 1.2(11% - 3%) = 12.6%

2. Hewlett Packard (HPQ) has a constant rate of growth in dividends and earnings of 6% ...

#### Solution Summary

This solution is comprised of a detailed explanation to calculate what is the expected return on GE stock, Hewlett Packard, and Georgia Pacific.