Question 31: An analyst has assembled the following information regarding Net-Zone Incorporated and the market in general: Net-Zone dividend (paid yesterday) $2.15 per share Net-Zone expected dividend growth Net-Zone expected ROE 3% per year 16.2% Net-Zone beta 1.8 Net Zone long-term bond yield Expected return on S&P 500 Index 30-day Treasury bill yield 10-year Treasury bond yield 8.6% 10.7% 3.5% 4.8% When reviewing the data provided by the analyst, the CFO of Net-Zone was surprised by the value of the company's beta. The CFO understands that the beta value is an indicator of risk, and investors need to be compensated for their risk of investing. The company's current stock price is just under $17 per share, which the CFO believes is too low considering the company's increased profit margins. If the CFO

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View Policies Current Attempt in Progress Carla Vista, Inc., has four-year bonds outstanding that pay a coupon rate of 7.0 percent and make coupon payments semiannually. If these bonds are currently selling at $921.69. What is the yield to maturity that an investor can expect to earn on these bonds? Assume face value is $1,000. (Round answer to 1 decimal place, e.g. 15.2%) Yield to maturity % What is the effective annual yield? (Round answer to 1 decimal place, eg. 15.2%) Effective annual yield. %

8-21 capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.5 В 120 million 1.2 80 million 1.8 D 80 million 1.0 60 million 1.6 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-e rate is 6%, and you believe the following probability distribution for future market retums is realistic: TT Probability Market Return 0.1 - 28% 0.2 0.4 12 0.2 30 0.1 50 What is the equation for the security market line (SML)? (Hint: First, determine the expected market return.) Calculate Kish's required rate of return. c. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has ar expected return of 15%, and its estimated beta is 1.5. Should Kish invest in the new company? At what expected rate of return should Kish be indifferent to purchasang the stock? а. b.

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Consider a convertible bond trading at $1,000 with a conversion ratio of 37.383, coupon rate of 9.5%, and par value of $1,000. If the firm's stock trades at $23 and provides an annual dividend of $0.75, what is the premium payback period? 1.81 1.99 2.23 2.09 <-000

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