Question
1. Beale Manufacturing Company has a beta of 1.2, and Foley Industries has a beta of 0.9. The required return on an index fund that
1. Beale Manufacturing Company has a beta of 1.2, and Foley Industries has a beta of 0.9. The required return on an index fund that holds the entire stock market is 10.5%. The risk-free rate of interest is 7%. By how much does Beale's required return exceed Foley's required return?
2. Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.83. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 2.04. What would your portfolio's new beta be?
3. Assume that the risk-free rate is 6% and the required return on the market is 12%. What is the required rate of return on a stock with a beta of 1.1? Round your answer to two decimal places.
4. An individual has $10,000 invested in a stock with a beta of 0.6 and another $70,000 invested in a stock with a beta of 2.0. If these are the only two investments in her portfolio, what is her portfolio's beta?
5.
A stock's returns have the following distribution:
Demand for the Company's Products | Probability of This Demand Occurring | Rate of Return If This Demand Occurs |
Weak | 0.2 | (36%) |
Below average | 0.1 | (7) |
Average | 0.3 | 18 |
Above average | 0.2 | 27 |
Strong | 0.2 | 48 |
1.0 |
Assume the risk-free rate is 3%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places.
Stock's expected return: __ %
Standard deviation: __ %
Coefficient of variation:
Sharpe ratio:
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