Question
Question 1: A portfolio consists of four stocks along. The table below shows the number of shares held in each stock, the price per share
Question 1: A portfolio consists of four stocks along. The table below shows the number of shares held in each stock, the price per share paid for each stock and the expected return on each stock. Calculate the expected return on the portfolio. All three steps of calculations must be shown, or marks will be deducted. (3.5 Marks)
Stock | Number of Shares | Price per Share | Expected Return |
A | 200 | 7.50 | 12% |
B | 400 | 8.25 | 10% |
C | 250 | 10.00 | 8% |
D | 500 | 12.00 | 14% |
Question 2: In the following, the probabilities of the different states of the economy and the associated rate of return for each state are given. (3.5 Marks)
State of Economy | Probability of State of Economy (P) | Rate of Return (r) |
Recession | 0.3 | - 12% |
Most likely | 0.5 | 6% |
Boom | 0.2 | 11% |
- Calculate the expected rate of return (1 mark)
- Calculate the variance (2 marks)
- Calculate the standard deviation (0.5 marks)
Question 3: Stock Z has a beta of 1.1, an expected return of 12.5 percent, and lies on the security market line. A risk-free security is yielding 3.2 percent. You want to create a portfolio consisting of stock Z and the risk-free security such that the portfolio beta is 0.8. What rate of return should you expect to earn on your portfolio? (4 Marks)
Question 5: Zanda Company financing sources are 60% from common stock and 40% from debt. Use the data in the following table to calculate each of (3 Marks)
a) The cost of debt Rd. (1 mark)
b) The cost of common stock Rsusing the Capital Asset Pricing Model CAPM. (1 mark)
c) The weighted average cost of capital WACC. (1 mark)
Symbol | Description | Rate / Value |
Rd b t | Return on debt before tax | 8% |
B | Beta | 1.2 |
Rrf | Risk free rate | 3.5 |
Rm | Market return | 12% |
T | Tax rate | 35% |
Question 6: Omicron, the latest corona various variant, have strongly affected the world when everyone thought that Covid 19 spread is receding. Discuss the immediate effects of Omicron on International and regional stock markets, crude oil prices among others since it was announced on November 25, 2021. (3 Marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started