Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please do asap Mr. Nitin Gupta had invested Rs.8 million each in Ashok Exports and Biswas Industries and Rs. 4million in Cinderella Fashions, only a

Please do asap

image text in transcribed

image text in transcribed

Mr. Nitin Gupta had invested Rs.8 million each in Ashok Exports and Biswas Industries and Rs. 4million in Cinderella Fashions, only a week before his untimely demise. As per his will this portfolio of stocks were to be inherited by his wife alone. As the partition among the family members had to wait for one year as per the terins of the will, the portfolio of shares had to be maintained as they were for the time being. The will had stipulated that the job of administering the estate for the benefit of the beneficiaries and partitioning it in due course was to be done by the reputed firm of Chartered Accountants, ABC Company Ltd. Meanwhile the widow of the deceased was very eager to know certain details of the securities and had asked the senior partner of ABC Company Ltd to brief her in this regard. For this purpose the senior partner has asked you to prepare a detailed note to him with calculations using CAPM, to answer the following possible doubt. What is the expected return and risk (standard deviation) of the portfolio? You find that out the three stocks, your firm has already been tracking two viz. Ashok Exports (A) and Biswas Industries (B)-their betas being 1.7 and 0.8 respectively. Further, you have obtained the following historical data on the returns of Cinderella Fashions(C): Period Market Return % Return's on Cinderella Fashions % 1 14 2 10 5 (2) (1) 3 8 (6) 4 4 5 5 10 6 8 11 7 10 15 Mr. Nitin Gupta had invested Rs.8 million each in Ashok Exports and Biswas Industries and Rs. 4million in Cinderella Fashions, only a week before his untimely demise. As per his will this portfolio of stocks were to be inherited by his wife alone. As the partition among the family members had to wait for one year as per the terins of the will, the portfolio of shares had to be maintained as they were for the time being. The will had stipulated that the job of administering the estate for the benefit of the beneficiaries and partitioning it in due course was to be done by the reputed firm of Chartered Accountants, ABC Company Ltd. Meanwhile the widow of the deceased was very eager to know certain details of the securities and had asked the senior partner of ABC Company Ltd to brief her in this regard. For this purpose the senior partner has asked you to prepare a detailed note to him with calculations using CAPM, to answer the following possible doubt. What is the expected return and risk (standard deviation) of the portfolio? You find that out the three stocks, your firm has already been tracking two viz. Ashok Exports (A) and Biswas Industries (B)-their betas being 1.7 and 0.8 respectively. Further, you have obtained the following historical data on the returns of Cinderella Fashions(C): Period Market Return % Return's on Cinderella Fashions % 1 14 2 10 5 (2) (1) 3 8 (6) 4 4 5 5 10 6 8 11 7 10 15

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investment Science

Authors: David G. Luenberger

2nd Edition

0199740089, 978-0199740086

Students also viewed these Finance questions