PROBLEM #1 A stock has a correlation of 0.45 with the market and a standard deviation of returns of 12.35%. the market has a standard deviation of returns of 8.25%, then the beta of the stock is closest to? PROBLEM #2 The common equity has a beta of 1.3 and market return is 5%. If risk-free rate is 4% what is the cost of equity? PROBLEM #3 You have a 180 million portfolio invested in 3 stocks - stocks 3.7.P. Your portfolio has a proportion of 45%.256.30% for stocks 2.2.P, respectively. There is a 50% chance that economy remains in status quo thus the interest rate for the next 5 yes will be the same at 12% annually. A 30% chance of decreasing economy which makes the interest rates to be more volatile (look at the Table 1). and 20% probability for improved economy in the next years, thus increasing the investment rate (look at the Table 2) Table 1 Period Interest Rates 1-year 3 year 10.5% 6% 10% 112 212 114 996 9.5 Table 3 2 Period Interest Rates 2-year 13.5% 4-year 14,896 114 15.99 REQUIREMENT A Calculate the following for each stock: 1. Expected peso value after 5 years of investing? 2. Expected rate of return given the probability of economic movement? 3. Standard Deviation REQUIREMENTB Calculate the correlation of the stocks. Stocks Y P 1.0 1.0 Y P 10 REQUIREMENT Calculate the portfolio performance: 1. Expected Rate of Return 2. Standard Deviation PROBLEM #4 Give two sectors/industry which you think are highly correlated. Provide a rationale of your choice and provide the factors and their effects on your sectors. ( WILL GIVE THUMBS UP)