A) $18.62
B) $19.08
C) $19.56
D) $20.05
E) $20.55
G) C) and D)
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B) False
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A) These two stocks must have the same dividend yield.
B) These two stocks should have the same expected return.
C) These two stocks must have the same expected capital gains yield.
D) These two stocks must have the same expected year-end dividend.
E) These two stocks should have the same price.
G) All of the above
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A) If the market risk premium increases but the risk-free rate remains unchanged, Dixon's required return will increase because it has a beta greater than 1.0 but Clark's required return will decline because it has a beta less than 1.0.
B) Since Dixon's beta is twice that of Clark's, its required rate of return will also be twice that of Clark's.
C) If the risk-free rate increases while the market risk premium remains constant, then the required return on an average stock will increase.
D) If the market risk premium decreases but the risk-free rate remains unchanged, Dixon's required return will decrease because it has a beta greater than 1.0 and Clark's will also decrease, but by more than Dixon's because it has a beta less than 1.0.
E) If the risk-free rate increases but the market risk premium remains unchanged, the required return will increase for both stocks but the increase will be larger for Dixon since it has a higher beta.
G) A) and C)
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A) Portfolio diversification reduces the variability of returns on an individual stock.
B) Risk refers to the chance that some unfavorable event will occur, and a probability distribution is completely described by a listing of the likelihoods of unfavorable events.
C) The SML relates a stock's required return to its market risk. The slope and intercept of this line cannot be controlled by the firms' managers, but managers can influence their firms' positions on the line by such actions as changing the firm's capital structure or the type of assets it employs.
D) A stock with a beta of −1.0 has zero market risk if held in a 1-stock portfolio.
E) When diversifiable risk has been diversified away, the inherent risk that remains is market risk, which is constant for all stocks in the market.
G) A) and C)
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A) $1,412.84
B) $1,487.20
C) $1,565.48
D) $1,643.75
E) $1,725.94
G) A) and E)
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A) $26.77
B) $27.89
C) $29.05
D) $30.21
E) $31.42
G) A) and E)
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