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Please show formulas and calculations and not just results and numbers, and explain rationale for answers. Whenever applicable, interest is compounded annually and payments occur at the end of the period. Face value for bonds is $1000.

You have the following information for Dell Inc.: 5%, 15%, -10%, 25%.

a. Calculate the average return and standard deviation for a population for Dell Inc.

b. The S&P 500 market portfolio has a standard deviation of 20%. Dell Inc. has a beta of .57. Find the correlation between Dell and the S&P 500. HINT: The formula for beta can help you get the correlation.

c. The S&P market portfolio has a return of 15%. Ten-year T-bonds (risk-free asset) have a return of 2.5%. Use Dell’s beta of .57 to estimate the required return for the stock.

d. If you put $120,000 into Dell and $40,000 into the S&P 500, find the return and standard deviation of your portfolio.

e. Based on additional research, you estimate the expected return on Dell’s stock at 16%. If the market is efficient, what will happen to the price of Dell? Explain.

f. Dell announces a new project. The new project has a beta of 1.5 and an expected return (IRR) of 20%. Is the project a good idea? Explain.

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Nelly Stracke
Nelly StrackeLv2
28 Sep 2019

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PLEASE ANSWER ALL 6 QUESTIONS BELOW, PARTICULARLY QUESTIONS 5 AND 6. THANKS.

.You have the following information for Dell Inc.: 5%, 15%, -10%, 25%.

1. Calculate the average return and standard deviation for a population for Claymore.

2. The S&P 500 market portfolio has a standard deviation of 20%.Claymore Inc. has a beta of .57.Find the correlation between Claymore and the S&P 500.HINT: The formula for beta can help you get the correlation.

3. The S&P market portfolio has a return of 15%.Ten-year T-bonds (risk-free asset) have a return of 2.5%.Use Claymore’s beta of .57 to estimate the required return for the stock.

4. If you put $120,000 into Claymore and $40,000 into the S&P 500, find the return and standard deviation of your portfolio.

5. You estimate the expected return on Dell’s stock at 16%. If the market is efficient, what will happen to the price of Dell? Explain.

6. Dell announces a new project. The new project has a beta of 1.5 and an expected return (IRR) of 20%. Is the project a good idea? Explain.

Choose one publicly traded companies that have not been chosen by other students. Go to yahoo.com and download five years of the monthly prices of the stock that you have chosen. Also download 5 years of monthly data for the S&P 500 prices (SPY) for the same period into your Excel spreadsheet. 1. Estimate the monthly return of the stock and the S&P 500. 2. Estimate average monthly return for both the stock and the S&P500. (Average of 5 years monthly returns of step 1) 3. Estimate the standard deviation of monthly returns of the stock and the S&P500 over the past 5 years. 4. Compare the risk-return trade off of your stock and S&P500 (SPY). Hint: standard deviation is a measure of the risk. You could attach your Excel file if you want to.

1. Compute the WACC for A.A.T. Bass & Co. using the information below:

Book value of bonds = $800 million Maturity date = February, 2028 Equity beta = 1.30 Shares outstanding = 380 million

Tax rate = 35% Market price of bonds = 95.75% Coupon rate on bonds = 7.0% Book value of equity = $115 million

Price of common stock = $21.67 Yield on 10-year Treasury notes (Rf) = 2.0% Expected return on Market Portfolio (Rm) = 9.0%

2. Compute the asset beta for A.A.T. Bass & Co. using market values for debt and equity.

3. You are given the following information about the market portfolio: Expected return = 9%; standard deviation of returns = 15%; beta = 1.0; P/E ratio = 16 And you are given the following information about Bob’s Barrel Co.: Standard deviation of returns = 24%; P/E ratio = 11; beta = 0.88; div yield = 2.5% Assume the risk free rate is 1.5% and the corporate tax rate is 36%.

a) Compute the required return on Bob’s equity

b) Compute the correlation between Bob’s equity and the market portfolio

4. Heavy Metal Corporation is expected to generate Free Cash Flow of $75 million in the current year. The free cash flow is expected to grow at a 3% rate forever. Heavy Metal has 20 million shares outstanding, $400 million in debt and no excess cash. The tax rate is 40%, the required return on equity is 12%, and the WACC (cost of capital) is 9%. Compute the Enterprise Value of Heavy Metal and the value of the stock per share.

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