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Date Posted: 19:22:00 05/01/00 Mon
Author: Charles Hodges
Subject: Re: Practice Final #6 - Fall 1999
In reply to: Kimberly Morgan 's message, "Practice Final #6 - Fall 1999" on 17:35:34 05/01/00 Mon

> question #8 - Why isn't choice "d" correct also?
>

See the equation on page 218. Beta is a function of both correlation with the market and standard deviation. Stock A could have a higher standard deviation but a lower correlation and therefore a lower beta.


> question #13 - using the formula $2.00(1+.15)E+07 (to
> the 7th power) I get $5.32. But that's not right.
> Why?

The 15% is the required return, not the growth rate.
This is a two step problem. You first need to solve for growth rate using the Constant Growth Model, then use the above equation replacing .15 with the growth rate.

Hope this helps.

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