Exercice 1: The market rate of return for next year would reach 14% according to the earnings forecast. The risk-free interest rate would be 9.5%. You own four titles about the following information is available: Titre Amount invested Beta 1 1,2 Return expected Standard deviation by the firm of security return 15% 0,35 14% 0,27 12% 0,40 18% 0,30 2. 30 M$ 18 M$ 60 M$ 12 M$ 0,8 3 4 1,0 1,5 a) Calculate the required rate of return on each of these securities as well as that of the portfolio that would group them together and determine whether the prices of these securities are overvalued or under-valued. b) To determine the relation or equation of the balance line of securities, to represent it graphically and to calculate the beta of the portfolio formed by the four securities indicated above. Exercice 2: The yield to maturity of a bond represents the interest rate on the investment if the interest rates remain the same. If you sell the bond before maturity, then this is referred to as the yield during the holding period. a. Suppose you buy a bond today that has a coupon rate of 9%, annual coupons of $ 1,200, and a maturity of 10 years. What rate of return to maturity should you expect from this investment? b. In two years, the yield to maturity on your bond drops 2.5% and you decide to sell. What will the bond price be? What will the return be while you hold your investment? Compare that yield to the yield to maturity when you buy the bond. How do you explain this difference? Exercice 3: XDTR Inc. has a covariance of its return with that of the Toronto Stock Exchange (TSX 300) equal to 0.010. The expected rate of return on the TSX 300 is 20% and the standard deviation around that rate is 8%. The rate of return on Canadian federal government treasury bills is 11%. A forecast study on the price of XDTR inc. puts it at $ 60 in two years. It is assumed that the conditions and performance of the economy will remain unchanged during these two years, as will the rates of return on various assets, including that on treasury bills. A) Calculate the rate of return and the risk of a portfolio composed of 75% of the market portfolio and the remainder in Federal Treasuries. B) Determine the rate of return required by the market for XDTR inc. C) Find out how XDTR Inc.'s stock market behaves today. which is listed at $ 42.60 (in other words, is it overvalued or undervalued?). D) Find out what rate of return the current price of $ 42.60 per share of XDTR.inc is