9. Problem 8.21 securitv Market line)

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You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks.

Stock

Investment

Stock's Beta Coefficient

5100 million

120 million

0.8

1.2

80 million

1.0

60 million

Kish's beta coefficient can be found as a weighted average of its stocks betas. The risk-free rate is 4%, and you believe the following probability distribution for future market returns is realistic:

Market Return

-27%

0.2

14

30

53

a. What is the equation for the Security Market Line (SML)? Hint: First determine the expected market return.

1. r = 4.0% + (10.2%)b

11, 1 = 0.0% 110.5%)

111. r = 4.0% + (9.2%)b

IV. n = 3.7% + (10.2%)

Vf=3./%+9.2%

b. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places

c. SUDDose RICK Kin. the prestoent. receives a proposal rom a companv seeking new capital. the amount needed to noUld kisn invest in the new comnanv?

The new stock-Select- v be purchased

take a position in the stock is $50 million. it has an exnected return or 16%. and its estimared beta is 1.4

At what expected rate of return should Kish be indifferent to purchasing the stock? Round your

answer to two decimal places

Tapital of $500 million invested in five stocks: of its stocks' betas. The risk-free rate is 4%, and you believe the following probability distribution for future market retur e (SML)? (Hint: First determine the expected market return.) round intermediate calculations. Round your answer to two decimal places. odosal from a company seeking neww cabital. The amount needed to take a position in the stock is 350 milllon, it fas an expect indifferent to purchasing the stock? Round your answer to two dedimal places