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I NEED A GOOD AND DETAIL EXPLANATION AND I NEED Calculations, Formulas and Graphs that support the answers. PLEASE THANK YOU. 5. A U.S. Treasury

I NEED A GOOD AND DETAIL EXPLANATION AND I NEED Calculations, Formulas and Graphs that support the answers. PLEASE THANK YOU.

5. A U.S. Treasury bond offers a 5% return. A common share has a beta of 0.70 and an expected return of 12%.

  • a) What is the expected return on a portfolio composed of equal investments in these two assets?
  • b) If a portfolio composed of these two assets has an expected return of 15 per cent, what is its beta?
  • c) If a portfolio of these two assets has a beta of 1.20, what are the weighting factors? How is the weight factor of the risk-free asset interpreted?

6. The company Caracol contemplates the possibility of issuing shares to finance an expansion project. Financial analysts at Caracol have determined that the project has the same risk as the market portfolio, as it has an expected return of 15% and the risk-free rate is 5%. The project yield is estimated at 20%. The project will continue unless:

  • a) The company's beta is higher than 1.5.
  • b) The company's beta is less than 1.5.
  • c) Whatever the company's beta, because what matters is the project's beta

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