Question
1- Richard must decide how to allocate the capital in his portfolio. Richard has $36,000 available to invest. He finds the rates of return for
1- Richard must decide how to allocate the capital in his portfolio. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Richard has | $36,000 | available to invest. He finds the rates of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
return for four stocks for the past 12 years and the results are given | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
below. Richard plans to invest 25% of his funds in each stock.
|
a) How much will he invest in each stock?$
b) The expected value of Richard's portfolio is: %
c) The standard deviation of Richard's portfolio is:%
2- Anna is a Vice President at the J Corporation. The company is considering | ||
investing in a new factory and Anna must decide whether it is a feasible |
| |
project. In order to assess the viability of the project, Anna must first calculate | ||
the rate of return that equity holders expect from the company stock. The | ||
annual returns for J Corp. and for a market index are given below. Currently, | ||
the risk-free rate of return is 1.8% and the market risk-premium is 7.4%. | ||
a) What is the beta of J Corp.'s stock? 2 decimal places
b) Using the CAPM model, what is the expected rate of return on J Corp. stock for the coming year?
(Round your answer to one one-hundreth of a percent)
Year | J Corp. Return (%) | Market Return (%) |
1 | -1.83 | -3.60 |
2 | 12.71 | 15.78 |
3 | 10.49 | 12.83 |
4 | 11.24 | 13.83 |
5 | -6.41 | -9.70 |
6 | 12.97 | 16.13 |
7 | 27.48 | 35.48 |
8 | 10.66 | 13.05 |
9 | 5.82 | 6.60 |
10 | 13.46 | 16.78 |
11 | -3.36 | -5.64 |
12 | -0.40 | -1.70
|
5- Refer to Questions 1 and 2. Richard has just received an unexpected | ||
bonus at work worth | $9,000 | and, given the J. Corp.'s reputation |
for excellent investment decision making, he will invest all of the bonus | ||
in J Corp. stock. Given the rates of return for stocks A, B, C, and D | ||
presented in Question 1 and the rates of return for J Corp. stock and | ||
the market presented in Question 2, as well as the cash amounts he | ||
is investing in stocks A, B, C, and D as you determined in Question 1, |
a) What is the beta of Richard's portfolio?
b) Richard's portfolio is
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