Question
9. Annie's investment portfolio consists of $10 in Stock A and $20 in Stock B. The beta is 1.2 and 0.9 for Stock A and
9. Annie's investment portfolio consists of $10 in Stock A and $20 in Stock B. The beta is 1.2 and 0.9 for Stock A and B, respectively. What is the beta for the portfolio? If the market index return is 13% and the risk free rate is 3%, what is the expected return for the portfolio ?
A) Portfolio beta of 0.8 and expected portfolio return of 8.60%
B) Portfolio beta of 0.9 and expected portfolio return of 11%
C) Portfolio beta of 1.0 and expected portfolio return of 13%
D) Portfolio beta of 0.975 and expected portfolio return of 9.825%
10. The New Performance Studio is looking to put on a new opera. They figure that the set-up and publicity will cost $300,000. The show will go on for 2 years and bring in after-tax net cash flows of $200,000 in Year 1 and $350,000 in Year 2. If the firm has a required rate of return of 6% on its investments, what is the profitability index (PI) of the new show?
A) 1.30
B) 0.95
C) 1.67
D) 2.21
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