Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed

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

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

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

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

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

The Evolution Of Nordic Finance

Authors: Steffen ElkiƦr Andersen

2011th Edition

0230241557, 978-0230241558

More Books

Students also viewed these Finance questions

Question

Explain the nature of human resource management.

Answered: 1 week ago

Question

Write a note on Quality circles.

Answered: 1 week ago

Question

Describe how to measure the quality of work life.

Answered: 1 week ago