INVESTMENT A Economic Outlook Probability Impact on Returns Severe Recession Mild Recession Normal Economy Strong Expansion Boom Expansion \begin{tabular}{|l|l|l|} \hline Boom Expansion & 14% & 20.000% \\ \hline & & \\ \hline \end{tabular} Exchange Rates Probability Impact on Returns Negative Impact Neutral Positive Impact In a Normal Economy with Neutral Exchange Rates we expect our IRR from Investment_A to be \begin{tabular}{|l|c|c|} \hline \multicolumn{2}{|c|}{ INVESTMENT B } & \multicolumn{2}{c|}{ Probability } & Impact on Returns \\ \hline Economic Outlook & 10% & (10.000%) \\ \hline Severe Recession & 24% & (5.000%) \\ \hline Mild Recession & 36% & 0.000% \\ \hline Normal Economy & 16% & 3.000% \\ \hline Strong Expansion & 14% & 5.000% \\ \hline Boom Expansion & & \\ \hline & Probability & Impact on Returns \\ \hline Exchange Rates & 20% & (5.000%) \\ \hline Negative Impact & 60% & 0.000% \\ \hline Neutral & 20% & 5.000% \\ \hline Positive Impact & & \\ \hline & & \\ \hline In a Normal Economy with Neutral Exchange Rates we & \\ \hline expect our IRR from Investment B to be & 8.0% \\ \hline \end{tabular} Correlation Coefficient of Investment_B with Investment_A \begin{tabular}{|lc|} \hline Risk Free Interest Rate & 5% \\ Market's General Rate of Return & 12.0% \\ \hline \end{tabular} Points Instructions 2 1. Using the combination of all (relevant to the respective Investment) Economic and Exchange Rate outcomes, what is the SHOW YOUR WORK TO THE RIGHT OF THE ABOVE DATA 1a. Expected Return from Investment_A 1b. Expected Return from Investment_B 1c. Standard Deviation of Returns from Investment_A 1d. Standard Deviation of Returns from Investment_B \begin{tabular}{|l|l} \hline & expected Return from A \\ \hline & expected Return from B \\ \hline standard deviation of Returns for A \\ \hline standard deviation of Returns for B \\ \hline \end{tabular} 2 2. Using the above and other information provided, what is the Show your work on the "Calculations for Q2" worksheet 2a. Expected Return for a Company with 70% of its balance sheet invested in Investment_B and the rest in Investment_A 2a. Standard Deviation of Returns for a Company with 70% of its balance sheet invested in Investment_B B and the rest in Investment_A standard deviation of Returns for portfolio 1 3. If the above information is for an industry that typically has 55% Debt, 0% preferred stock, a typical tax rate of 30%, and a beta of 1.2 Show your work on the "Calculations for Q3" worksheet 3.a. what is our levered beta if our tax rate tends to be the same as the industry and we normally have a 50% of our assets supported by Debt (and no preferred) 3.b. what is our required return on equity given the above? \begin{tabular}{|l|l|} \hline & Our Levered Beta \\ \hline Required Return on Equity \\ \hline \end{tabular}