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Please help me to solve this finance question Suppose you are an investment advisor tracking MK Corporation and SL Corporation. The beta of MK and
Please help me to solve this finance question
Suppose you are an investment advisor tracking MK Corporation and SL Corporation. The beta of MK and SL are 1.5 and 1 respectively. The average rate of return for MK and SL are 19% and 16% respectively. a. Can you tell which stock will yield a better performance? Explain. (4 points) b. If the T-bill rate were 4.5% and the market return during that period were 14%, is there abnormal return for MK and SL? (4 points) c. Given (b), identify and justify which stock would be more appropriate for investors who want to add a stock to a well-diversified equity portfolio, (4 points) d. For both MK and SL, the ROE is 20% and the dividend payout ratio is 30%. They both earned $3.2 a share last year, and just paid out a dividend of $2.24 per share. Suppose, the current risk-free rate is 4.5%, what are the PVGO for MK and SL? (8 points) e. Given (b), if there are only MK, SL and market portfolio available in the market, how can you do an arbitrage to earn the highest possible abnormal return? What is the abnormal return generated by your arbitrage portfolio? (5 points) Suppose you are an investment advisor tracking MK Corporation and SL Corporation. The beta of MK and SL are 1.5 and 1 respectively. The average rate of return for MK and SL are 19% and 16% respectively. a. Can you tell which stock will yield a better performance? Explain. (4 points) b. If the T-bill rate were 4.5% and the market return during that period were 14%, is there abnormal return for MK and SL? (4 points) c. Given (b), identify and justify which stock would be more appropriate for investors who want to add a stock to a well-diversified equity portfolio, (4 points) d. For both MK and SL, the ROE is 20% and the dividend payout ratio is 30%. They both earned $3.2 a share last year, and just paid out a dividend of $2.24 per share. Suppose, the current risk-free rate is 4.5%, what are the PVGO for MK and SL? (8 points) e. Given (b), if there are only MK, SL and market portfolio available in the market, how can you do an arbitrage to earn the highest possible abnormal return? What is the abnormal return generated by your arbitrage portfolio? (5 points)Step by Step Solution
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