1. Suppose Wesley Publishing's stock has a volatility of 50 %, while Addison Printing's stock has a volatility of 25 %. If the correlation between these stocks is 25 %, what is the volatility of the following portfolios of Addison and Wesley:

a. 100 % Addison

b. 75 % Addison and 25 % Wesley

c. 50 % Addison and 50 % Wesley

2. Your investment portfolio consists of $18,000 invested in only one stock - Amazon. Suppose the risk-free rate is 4 %, Amazon stock has an expected return of 11 % and a volatility of 44 %, and the market portfolio has an expected return of 12 % and a volatility of 17 % Under the CAPM assumptions,

a. What alternative investment has the lowest possible volatility while having the same expected return as Amazon? What is the volatility of this investment?

b. What investment has the highest possible expected return while having the same volatility as Amazon? What is the expected return of this investment?

Hint: Make sure to round all intermediate calculations to at least five decimal places.

a. What alternative investment has the lowest possible volatility while having the same expected return as Amazon?

What is the investment that has the lowest possible volatility while having the same expected return as Amazon, we use the following strategy:

Sell: $____ worth of Amazon stock.

Borrow: $____ at the risk-free rate.

Buy: $____ worth of the market portfolio.

Buy: $____ worth of the risk-free investment.

3. IDX Tech is looking to expand its investment in advanced security systems. The project will be financed with equity. You are trying to assess the value of the investment, and must estimate its cost of capital. You find the following data for a publicly-traded firm in the same line of business: By making some realistic assumptions, estimate the project's beta.

The estimated project's beta is ____

Table

Debt outstanding (book value, AA-rated) $337 Million

Number of shares of common stock $81 Million

Stock Price per share $13.77

Book value of equity per share $7.13

Beta of equity 1.21

4.Harrison Holdings, Inc. (HHI) is publicly traded, with a current share price of $ 31 per share. HHI has 30 million shares outstanding, as well as $ 67 million in debt. The founder of HHI, Harry Harrison, made his fortune in the fast food business. He sold off part of his fast food empire, and purchased a professional hockey team. HHI's only assets are the hockey team, together with 50 % of the outstanding shares of Harry's Hotdogs restaurant chain. Harry's Hotdogs (HDG) has a market capitalization of $ 884 million, and an enterprise value of $ 1.09 billion. After a little research, you find that the average asset beta of other fast food restaurant chains is 0.79. You also find that the debt of HHI and HDG is highly rated, and so you decide to estimate the beta of both firms' debt as zero. Finally, a regression analysis on HHI's historical stock returns in comparison to the S&P 500, and estimate an equity beta of 1.38. Given this information, estimate the beta of HHI's investment in the hockey team.

HHI's asset beta is ___.