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BE eBook You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment A
BE eBook You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment A $160 million B 120 million 80 million D 80 million E 60 million Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 6%, and you believe the following probability distribution for future market returns is realistic: Probability 0.1 0.2 0.4 0.2 0.1 a. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) I. r = 5.2% + (7.3%)bi II. r = 5.2% + (6.7%)bi III. r = 6.0% + (7.3%) bi IV. r = 5.3% + (5.8%) bi V. r= 6.0% + (6.7%)bi Stock's Beta Coefficient 0.8 1.2 1.7 1.0 1.3 % Market Return -28% 0 13 29 51 -Select- b. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % c. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 15%, and its estimated beta is 1.4. Should Kish invest in the new company? The new stock -Select- be purchased. At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places
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