Question
The following information is given to you about the Jamaican stock market and the shares of Hedman Ltd. The average stock market return on equity
The following information is given to you about the Jamaican stock market and the shares of Hedman Ltd.
| The average stock market return on equity | - 13% |
| The beta (market risk) of Hedmans stock | - 1.4 |
| The risk-free rate of return | - 6% |
| Dividend yield | - 2.9% |
| Share price rise (capital gain) | - 15% |
| Current dividend per share | - 10 cents |
| Expected growth of future dividends | - 10% p.a. |
Magnus has just inherited $50,000 and he wants to invest $40,000 in the stock market. He has decided to put his money in the following three shares in the proportions indicated:
| Share | Beta | Proportion of funds to be invested |
| Hedman Ltd. | as above | 50% |
| James | 1.0 | 25% |
| Seaman | 0.7 | 25% |
Using the information given above, and in part (a) as appropriate:
a) Calculate the beta of Magnus's portfolio.
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Valuation Measuring and managing the values of companies
Authors: Mckinsey, Tim Koller, Marc Goedhart, David Wessel
5th edition
978-0470424650, 9780470889930, 470424656, 470889934, 978-047042470
