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    Finance questions: Returns, CAPM, Holding period returns

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    Capital Asset Pricing Model
    6.10
    Suppose you invest $27,000 in King Company Stock, which has a beta of 1.33 and in 1000 shares of Ace company stock at $23 a share. Ace has long term growth of 4% annually. The riskless rate is 9% and the expected return rate on the market is 17%. Next year the dividend of Ace will be $2.30 a share. Find the beta of Ace and the expected return of the portfolio.

    *I am confused on how to achieve the answer. The answer is provided but I am confused on the steps to get it.
    Answer= B=.625, E(Rp)=17.05

    6.12
    Knoll Inc stock has a beta of 1.25, the expected return on the market is 12%, and the riskless rate is 8%. Knoll Inc may grow annually at the rate of 3% for many, many years. Next year Knoll will pay a dividend of $3.00. Find the price of Knoll Stock.
    *I am confused on how to achieve the answer. The answer is provided but I am confused on the steps to get it.
    Answer=$30.00

    6.14
    Cornfeld Company stock has a beta of 1.1 and its expected return is 12%, whereas Goldenstein Company stock has beta of 1.2 and its expected retun rate is 12.3%. Find the riskless rate and the expected return rate of the market.

    *I am confused on how to achieve the answer. The answer is provided but I am confused on the steps to get it.
    R=8.7%, E(Rm)=11.7%

    6.16
    The expected return on the market next year is 15%, whereas the riskless rate is 6%. The beta of IBM is 0.8, its current price is $120 per share and its dividend next year is $6. Using CAPM, find the expected price of IBM stock next year.

    *I am confused on how to achieve the answer. The answer is provided but I am confused on the steps to get it.
    Answer= $129.84

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    https://brainmass.com/statistics/central-tendency/finance-questions-returns-capm-holding-period-returns-260138

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    Solution Summary

    The problem deals with fundamental issues in Finance including holding period returns, return under CAPM, risk-free rate etc.

    $2.19

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