Question
Expected Rate of Return Scenario Probalility T-Bills S&P 500 Utility Company High Tech Company Counter Cyclical Company Recession Scenario Probalility T-Bills S&P 500 Utility Company
Expected Rate of Return
Scenario Probalility T-Bills S&P 500 Utility Company High Tech Company Counter Cyclical Company
Recession
| Scenario | Probalility | T-Bills | S&P 500 | Utility Company | Tech Company | Counter Cyclical Company |
| Recession
| 20% | 5% | -10% | 6% | -25% | 20% |
| Near Recession
| 20% | 5% | -6% | 7% | -20% | 16% |
| Normal
| 30% | 5% | 12% | 9% | 15% | 12% |
| Near Boom
| 10% | 5% | 15% | 11% | 25% | -9% |
| Boom
| 20% | 5% | 20% | 14% | 35% | -20% |
Based on the above returns, Jenna calculated the betas of the three stocks as follows:
Beta of Utility Company= 0.22
Beat of High Tech Company= 2.02
Beta of Counter Cyclical Company= -1.13
Imagine you are Jenna. Prepare a report for Kevin to help him understand the concepts of risk and return. Include the following things in your report.
- Kevin has no idea what beta means and how it is related to the required return of the stocks. Help him understand these concepts.
- What would happen if Kevin were to put 70% of his portfolio in the high tech stock and 30% in the S&P 500 index fund? What is the risk and return? Would this combination be better for him? Explain.
Expected Rate of Return Scenario Probalility T-Bills S&P 500 Utility Company High Tech Company Counter Cyclical Company Recession Scenario Probalility T-Bills S&P 500 Utility Tech Counter Company Company Cyclical Company Recession 20% 5% -10% 6% -25% 20% Near Recession 20% 5% -6% 7% -20% 16% Normal 30% 5% 12% 9% 15% 12% Near Boom 10% 5% 15% 11% 25% -9% Boom 20% 5% 20% 14% 35% -20% Based on the above returns, Jenna calculated the betas of the three stocks as follows: Beta of Utility Company= 0.22 Beat of High Tech Company= 2.02 Beta of Counter Cyclical Company= -1.13 Imagine you are Jenna. Prepare a report for Kevin to help him understand the concepts of risk and return. Include the following things in your report. 1. 2. Kevin has no idea what beta means and how it is related to the required return of the stocks. Help him understand these concepts. What would happen if Kevin were to put 70% of his portfolio in the high tech stock and 30% in the S&P 500 index fund? What is the risk and return? Would this combination be better for him? Explain
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
