Question 5 (Question 1 and 2 are both completed and included for reference)

A 3 K Enter Answer B 1 Question 5 (5 Marks) 2 Refer to Questions 1 and 2. Richard has just received an unexpected 3 bonus at work worth $20,000 and, given the J. Corp.'s reputation 4 for excellent investment decision making, he will invest all of the bonus s in J Corp. stock. Given the rates of return for stocks A, B, C, and D 6 presented in Question 1 and the rates of return for J Corp. stock and 7 the market presented in Question 2, as well as the cash amounts he 8 is investing in stocks A, B, C, and D as you determined in Question 1, 10 a) What is the beta of Richard's portfolio? (3 Marks) Enter Answer 11 (round to two decimal points) 13 b) Richard's portfolio is... (2 Mark) Aggressive Defensive Check only one box Neither 16 17 Enter your Final Answer Here 18 Complete your rough work in the space below 9 12 14 } 15 B h Dab Format Painter Undo Clipboard Font C33 fx B b E F G H Question 1 (4 Marks) 2. Richard must decide how to allocate the capital in his portfolio. Richard has $80,000 available to invest. He finds the rates of retum 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. 3 5 6 $20,000 7 a) How much will he invest in each stock? (1 Mark) 8 8.50 % 9 b) The expected return of Richard's porfolio is: 10 (2 Marks Round your answer to one one-hundrath of a percent) 12.50 1% 11 c) The standard deviation of Richard's portfolio return is: 12 (1 MarkyRound your answer to one one hundredth of a percent) 13 14 Year Stock A (%) Stock B (%) Stock C (%) Stock D (%) Enter your Final Answer Hero 15 1 -9.090 -15.300 1.500 14.820 16 2 12.294 20.340 -1.984 20.820 17 3 14.994 24.840 -2.434 25.320 18 4 7.794 12.840 -1.234 13.320 19 5 18.090 -30.300 3.000 -29.820 20 6 19.110 31.700 3.120 32.180 7 11.310 18.700 - 1.820 19.180 22 15 942 26.420 2.592 26.900 23 13. 230 21.900 -2.140 22.380 24 10 13.494 22 340 -2.184 22.820 25 11 -5.706 -9.6GO 1.016 -9.180 26 12 8.490 14 300 1.480 13.820 22 Complete your rough wors in the space belo 28 29 AAAANNNNN o H 1 8 CD Question 2 (3 Marks) 2 Anna is a Vice President at the J Corporation. The company is considering 3 Investing in a new factory and Anna must decide whether it is a feasible 4 project. In order to assess the viability of the project, Anna must first calculate s the rate of return that equity holders expect from the company stock. The 6 annual returns for J Corp. and for a market index are given below. Currently, 7 the risk-free rate of return is 1.4% and the market risk-premium is 3.0% 8 0.80 3.77% 1 Enter your Final Answer Here 9a) What is the beta of J Corp.'s stock? 10 (1 Mark Round your answer to two decimal places) b) Using the CAPM model, what is the expected rate of return on J Corp. 11 stock for the coming year? 12 (2 Marka) Round your answer to one one-hundreth of a percent) J Corp Market Retum Return 13 Year (%) (%) 14 1 -5.94 -7.80 15 2 8.32 10.02 16 3 10.12 12.27 12 4 5.32 6.27 18 5 - 11.94 -15.30 19 6 12.86 15.70 20 7 7.66 9.20 21 8 10.75 13.06 22 9 8.94 10.80 23 10 9.12 11.02 24 11 -3.68 -4.98 25 12 -5.54 -7.30 26 Complete your rough work in the space below