Posted by **Ene** on Thursday, September 12, 2013 at 1:27am.

5. Consider the following stocks, all of which will pay a liquidating dividend in a year and nothing in the interim:

Market Capitalization ($ million) Expected Liquidating Dividend ($ million) Beta

Stock A 800 1000 0.77

Stock B 750 1000 1.46

Stock C 950 1000 1.25

Stock D 900 1000 1.07

a. Calculate the expected return of each stock.

b. What is the sign of correlation between the expected return and market capitalization of the stocks?

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