$8$:$16$

Back

practice$\_$exam$\_1-1.$docx

$10.$ You are a financial planner, who is helping a client that has $$25,000,000$ invested in the following five stocks:

$\backslash$table$[[$Stock$,$Ticker,Beta,$\backslash$table$[[$Amount$],[$Invested$]]],[$Microsoft$,$MSFT$,$$$5,000,000,],[$Intel Corp.,INTC,$$3,750,000,],[$McDonald$\text{'}$s$,$MCD$,$$$2,500,000,],[$Coca$-$Cola,KO$,$$$6,250,000,],[$Disney$,$DIS,$$7,500,000,],[,$ Total,,$$25,000,{000}_{?},]]$

To find the estimated beta for any given stock, go to Yahoo Finance and enter the company's ticker symbol. From there you will see some summary information which includes each company's beta:

MSFT: $\mathrm{.}92$

INTC: $\mathrm{.}78$

MCD: $.64$

KO: $.56$

DIS: $1\mathrm{.}29$

a$.$ What is the beta of your client's portfolio?

Beta $=0\mathrm{.}89$

$.$ Assume that the risk$-$free rate, $rRF,$ is $4\mathrm{.}0\%.$ The market risk premium, $(rM-rRF),$ is $6\mathrm{.}0\%.$ What is the required rate of return on the client's investment portfolio? Carry your answer out to $4$ decimal places.

Required Rate of Return $=9\mathrm{.}3520\%$

c$.$ Now assume that your client sells $60\%$ of her holdings in Disney and uses the proceeds to buy $$4,500,000$ worth of an exchange traded fund $($ticker symbol SPY$)$ that tracks the overall S&P $500($and therefore has an estimated beta $=1\mathrm{.}0).$ Following this shift, what would be the required rate of return on her portfolio? Carry your answer out to $4$ decimal places.

Required Return $=9\mathrm{.}0388\%$

d$.$ If the overall stock market declines this year, would you expect this new portfolio to do better or worse than the original portfolio? $($i$.$e$.,$ Which portfolio would be less hurt by the declining market?$)$ Very briefly explain your answer.

The new portfolio would do better than the original, as there is a lower heta in the new one Hioher hetas enwate to hioher rick Please show stpw by step example