Question;Directions;Answer the following questions on a separate document. Explain how you reached;the answer or show your work if a mathematical calculation is needed, or both.;Submit your assignment using the assignment link in the course shell. This;homework assignment is worth 100 points.;Use;the following information for questions 1 through 8;The;Goodman Industries? and Landry Incorporated?s stock prices and dividends, along;with the Market;Index;are shown below. Stock prices are reported for December 31 of each year, and;dividends reflect those paid during the year. The market data are adjusted to;include dividends.;Goodman Industries;Landry Incorporated;Market Index;Year;Stock;Price;Dividend;Stock Price;Dividend;Includes;Dividends;2013;$25.88;$1.73;$73.13;$4.50;17.49;5.97;2012;22.13;1.59;78.45;4.35;13.17;8.55;2011;24.75;1.50;73.13;4.13;13.01;9.97;2010;16.13;1.43;85.88;3.75;9.65;1.05;2009;17.06;1.35;90.00;3.38;8.40;3.42;2008;11.44;1.28;83.63;3.00;7.05;8.96;1. Use;the data given to calculate annual returns for Goodman, Landry, and the Market;Index, and then calculate average annual returns for the two stocks and the;index. (Hint: Remember, returns are calculated by subtracting the beginning price;from the ending price to get the capital gain or loss, adding the dividend to;the capital gain or loss, and then dividing the result by the beginning price.;Assume that dividends are already included in the index. Also, you cannot;calculate the rate of return for 2008 because you do not have 2007 data.);2. Calculate;the standard deviations of the returns for Goodman, Landry, and the Market;Index. (Hint: Use the sample standard deviation formula given in the chapter;which corresponds to the STDEV function in Excel.);3. Estimate;Goodman?s and Landry?s betas as the slopes of regression lines with stock;return on the vertical axis (y-axis) and market return on the horizontal axis;(x-axis). (Hint: Use Excel?s SLOPE function.) Are these betas consistent with your;graph?;4. The;risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market;risk premium is 5%. What is the required return on the market using the SML;equation?;5.;If you formed a portfolio;that consisted of 50% Goodman stock and 50% Landry stock, what would be its;beta and its required return?;6.;What dividends do you expect;for Goodman Industries stock over the next 3 years if you expect you expect the;dividend to grow at the rate of 5% per year for the next 3 years? In other;words, calculate D1, D2, and D3. Note that D0 = $1.50.;7. Assume;that Goodman Industries? stock, currently trading at $27.05, has a required;return of 13%. You will use this required return rate to discount dividends.;Find the present value of the dividend stream, that is, calculate the PV of D1;D2, and D3, and then sum these PVs.;If;you plan to buy the stock, hold it for 3 years, and then sell it for;$27.05, what is the most you should pay for it?;Use;the following information for Question 9;Suppose;now that the Goodman Industries (1) trades at a current stock price of $30 with;a (2) strike price of $35. Given the following additional information: (3) time;to expiration is 4 months, (4) annualized risk-free rate is 5%, and (5);variance of stock return is 0.25.;9. What is the price for;a call option using the Black-Scholes Model?
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