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##### Calculate the price of a stock that has a one-period horizon,

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1. (10 points);Calculate the price of a stock that has a one-period horizon, is expected to pay a;dividend of \$.20 per share for the period, with the following prices and associated;probabilities forecast at the end of the period;Probability 0.3;Price;\$40;0.1;\$45;0.2;\$55;0.3;\$62;0.1;\$70;The return on comparable stocks is 8%.;2. (15 points);JetBlue Airways Corporation (JBLU) reports the following in its latest quarterly;report;Authorized shares;Shares issued;Shares outstanding;500,000,000;317,391,718;290,305,387;a. (5 points);How many shares are in the treasury stock?;b. (5 points);If the float is 280,700,408 shares, find the number of restricted shares.;c. (5 points);Recently, JBLU closed at \$5.51 per share. Based on this price, find the market;capitalization of the company.;To answer questions 3 and 4, refer to the articles by Malkiel and Shleifer available on the;course web site, in addition to what we covered in class.;3. (15 points);a. (5 points);Why do Malkiel, and those who think like him, believe in efficient market theory?;b. (5 points);What are three attacks on EMH that Malkiel attributes to the behavioralists?;c. (5 points);What does Malkiel believe about the market patterns the behavioralists claim to;have discovered?;4. (20 points);a. (5 points);How does Shleifer define arbitrage? How does he use the concept to argue;against market efficiency?;b. (5 points);Why would the market value of Royal Dutch equal 1.5 times the market value of;Shell if efficient market theory is correct?;c. (5 points);Why is the Royal Dutch/Shell case something of an embarrassment for EMH?;d. (5 points);How does the fact that arbitrage is risky argue against EMH?;5. (10 points);What is the beta of a stock with an expected return E(ri) = 18%, when the risk-free;rate rF = 6%, and the expected market return E(rM) = 14%? Show your work.;6. (10 points);True or false? Explain: Stocks with a beta of zero offer an expected rate of return of;zero.;7. (10 points);Suppose the rate of return on short-term government securities (perceived to be riskfree) is 5%. Suppose also that the expected rate of return required by the market for a;portfolio with a beta of 1 is 12%. According to the CAPM;a. (5 points);What is the expected rate of return on the market portfolio?;b. (5 points);What would be the expected rate of return on a stock with = 0?;8. (10 points);Describe the two kinds of contracts that an underwriter can negotiate with a firm;wishing to do an IPO. Discuss which is more costly to the issuing firm, and why.;View Full Attachment

Paper#27058 | Written in 18-Jul-2015

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