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The Efficient Frontier article, “The 15-Stock Diversification Myth,”

Bling Diamond’s cash dividend be in seven years ?

5. Four years ago, Bling Diamond, Inc., paid a dividend of $1.20 per share. Bling paid a dividend of $1.93 per share yesterday. Dividends will grow over the next five years at the same rate they grew over the last four years. Thereafter, dividends will grow at 7 percent per year. What will Bling Diamond’s cash dividend be in seven years?

6. UsingCapital Asset Pricing Model, A stock has an expected return of 16.2 percent, a beta of 1.75, and the expected return on the market is 11 percent. What must the risk-free rate be?

SAMPLE ANSWER :

Beta 1.75
Expected return 16.20%
Market return 11%
Risk Free rate(It was back calculated using CAPM Model) 4.060%

7. Based on the following information, calculate the expected return and standard deviation of each of the following stocks. Assume each state of the economy is equally likely to happen. What are the covariance and correlation between the returns of the two stocks?

      State of Economy                 Return on Stock A                 Return on Stock B

       Bear                                        .082                                              -.065

       Normal                                   .095                                                .124

       Bull                                          .063                                                .185

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