Question
Bartman Industries and Reynolds Inc.'s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 20152020. The Winslow 5000
Bartman Industries and Reynolds Inc.'s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 20152020. The Winslow 5000 data are adjusted to include dividends.
Bartman Industries | Reynolds Inc. | Winslow 5000 | ||||||||||||
Year | Stock Price | Dividend | Stock Price | Dividend | Includes Dividends | |||||||||
2020 | $17.20 | $1.15 | $47.00 | $2.90 | $11,227.31 | |||||||||
2019 | 14.55 | 1.06 | 50.15 | 2.85 | 8,529.78 | |||||||||
2018 | 16.35 | 1.00 | 47.00 | 2.75 | 8,423.54 | |||||||||
2017 | 10.55 | 0.95 | 54.10 | 2.45 | 6,310.29 | |||||||||
2016 | 11.22 | 0.90 | 57.25 | 2.30 | 5,441.46 | |||||||||
2015 | 7.47 | 0.85 | 52.80 | 2.00 | 4,560.58 |
Do not round intermediate calculations. Round your answers to two decimal places.
1. Estimate Bartman's and Reynolds's betas by running regressions of their returns against the index's returns. Round your answers to four decimal places.
Bartman's beta: fill in the blank 30
Reynolds's beta: fill in the blank 31
2. Assume that the risk-free rate on long-term Treasury bonds is 4.5%. Assume also that the average annual return on the Winslow 5000 is not a good estimate of the market's required returnit is too high. So use 10% as the expected return on the market. Use the SML equation to calculate the two companies' required returns. Round your answers to two decimal places.
Bartman's required return: fill in the blank 33 %
Reynolds's required return: fill in the blank 34 %
3. If you formed a portfolio that consisted of 50% Bartman and 50% Reynolds, what would the portfolio's beta and required return be? Round your answer for the portfolio's beta to four decimal places and for the portfolio's required return to two decimal places.
Portfolio's beta: fill in the blank 35
Portfolio's required return: fill in the blank 36 %
4. Suppose an investor wants to include Bartman Industries's stock in his portfolio. Stocks A, B, and C are currently in the portfolio, and their betas are 0.728, 0.915, and 1.553, respectively. Calculate the new portfolio's required return if it consists of 30% of Bartman, 20% of Stock A, 25% of Stock B, and 25% of Stock C. Round your answer to two decimal places.
fill in the blank 37 %
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