Question 1 (4 Marks) $3,000 Richard must decide how to allocate the capital in his portfolio. Richard has available to invest. He finds the rates of return for four stocks for the past 12 years and the results are given below. Richard plans to invest 25% of his funds in each stock. a) How much will he invest in each stock? (1 Mark) b) The expected return of Richard's porfolio is: (2 Marks) (Round your answer to one one-hundreth of a percent) c) The standard deviation of Richard's portfolio return is: (1 Mark)(Round your answer to one one-hundredth of a percent) Year Stock A (%) Stock B (%) 1 0.700 0.300 2 3 4 5 6 7 8 9 10 11 12 22.080 26.700 24.700 -17.100 32.200 75.700 27.020 7.100 24.080 -11.080 -1.100 5.645 6.800 6.300 -4.150 8.175 19.050 6.880 1.900 6.145 -2.645 -0.150 Stock C (%) 0.640 -4.705 -5.860 -5.360 5.090 -7.235 -18.110 -5.940 -0.960 -5.205 3.585 1.090 Stock D (%) -0.290 31.780 38.710 35.710 -26.990 46.960 112.210 39.190 9.310 34.780 -17.960 -2.990 Enter Answer Enter Answer% Enter Answer% T Enter your Final Answer Here Complete your rough work in the space below Question 2 (3 Marks) Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is a feasible project. In order to assess the viability of the project, Anna must first calculate the rate of return that equity holders expect from the company stock. The annual returns for J Corp. and for a market index are given below. Currently, the risk-free rate of return is 2.8% and the market risk-premium is a) What is the beta of J Corp.'s stock? (1 Mark) (Round your answer to two decimal places) b) Using the CAPM model, what is the expected rate of return on J Corp. stock for the coming year? (2 Marks) (Round your answer to one one-hundreth of a percent) Year 1 2 3 4 5 6 7 8 9 10 11 12 J Corp. Market Return (%) Return (%) -0.55 -0.10 20.83 10.59 25.45 12.90 23.45 11.90 -18.35 -9.00 30.95 15.65 74.45 37.40 25.77 13.06 5.85 22.83 -12.33 -2.35 3.10 11.59 -5.99 -1.00 5.5% Complete your rough work in the space below Question 3 (3 Marks) Refer to Question 2. Now that Anna has determined an appropriate rate of return for J Corp.'s stock, she must calculate the firm's Weighted Average Cost of Capital (WACC). There are currently 57.0 Million J Corp. common shares outstanding. Each share is currently priced at $17.94. As well, the firm has 7,000 bond has a face value of $10,000, a yield to maturity of quoted price of J Corp. has no preferred shares outstanding. bonds outstanding and each 3.59% $10,359.00. J Corp.'s tax rate is 30%. What is J Corp.'s WACC? (Round your answer to one one-hundredth of a percent) Complete your rough work in the space below and a Enter Answer Enter your Final Answer Here Question 4 (5 Marks) $6,700,000 Refer to Questions 2 and 3. The land for the factory will cost $1,010,000 The factory will cost to build and construction will take two years with construction costs payable in equal installments at the start of each year. The factory will operate for 20 years. At the end of its 20 year lifespan, the land can be resold for $630,000. There is a 70% probability that the factory's net operating cash flows will be $1,430,397; however, there is a 30% chance that net cash flows will only be $959,383 . You may assume that net operating cash flows are received at the end of each year. a) What are the Expected net operating cash flows per year? (1 Mark) (Round your answer to 2 decimal places) b) What is the Internal Rate of Return for the project? (1 Mark) (Round your answer to one one-hundreth of a percent) c) What is the Net Present Value of the project? (1 Mark) (Round your answer to 2 decimal places) d) Should Anna recommend that the J Corporation build the factory? (2 Marks) Complete your rough work in the space below Question 5 (5 Marks) Refer to Questions 1 and 2. Richard has just received an unexpected bonus at work worth $750 and, given the J. Corp.'s reputation for excellent investment decision making, he will invest all of the bonus in J Corp. stock. Given the rates of return for stocks A, B, C, and D presented in Question 1 and the rates of return for J Corp. stock and the market presented in Question 2, as well as the cash amounts he is investing in stocks A, B, C, and D as you determined in Question 1, Enter Answer a) What is the beta of Richard's portfolio? (3 Marks) (round to two decimal points) b) Richard's portfolio is... (2 Mark) Complete your rough work in the space below Aggressive Defensive Neither } Che Enter your Final Answer Here