Question:
Cinderella invests the following sums of money in common stocks having the expected returns as detailed below:
(a) What is the expected return of Cinderella's portfolio?
(b) What would be the expected return of Cinderella's portfolio if she tripled her investment in Aleef Investment, while leaving everything else the same?
(c) The common stock of Regent Financials in which Cinderella has invested is currently trading at Rs 75 a share. The common stock of Regent Financials was worth Rs 55 a year ago when the firm paid a dividend of Rs 2.50. What is the rate of return the firm has earned?
(d) Suppose the dividend policy of Regent Financials is expected to grow at a long term rate of 10 percent per annum. Calculate the present value of a share at Regent Financials if the firm's dividend per share is Rs 3.00 and the required rate of return is 17 percent.