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There are few finance questions. Please help me . Thank you Risk & Return Question One: Heathcliff has invested 40% of his wealth in stock

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There are few finance questions. Please help me . Thank you

image text in transcribed Risk & Return Question One: Heathcliff has invested 40% of his wealth in stock A and the remainder in stock B. He has assessed their prospects as follows; A B Expected return 15% 20% Standard deviation 20% 22% The correlation coefficient for these two stocks is AB = 0.50. 1. Calculate the expected return (ER) and risk () of his portfolio. 2. Is his portfolio better or worse than investing entirely in stock A? Why? 3. If the correlation coefficient of stock A with the market (Am) is 0.88 and m is 12%, calculate the beta coefficient for stock A Question Two: 1. The risk-free rate of return is 10%, the required rate of return on the market, ^ r m is 15%, and the stock X has a beta coefficient of 1.4. If the dividend expected during the coming year, D 1, is $2.50 and g = 5%, at what price should stock X sell? 2. Now suppose that the Federal Reserve increases the money supply, causing the riskless rate to drop to 9%. What will this do to the price of the stock? 3. In addition to the change in (2), suppose that the investor's risk aversion declines; this fact combined with the decline in rf, causes ^ r m to fall to 13%. At what price will stock X sell now? 4. Now suppose that firm X has a change of management. The new group institutes policies that increase the growth rate to 6%. Also, the new management stabilizes sales and profits, thus causing the beta coefficient to decline from 1.4 to 1.1. After all of these changes (maintain the changes from (2) and (3) in addition to these latest changes), what is stock X's new equilibrium price? Question Three: The beta coefficient for stock J is bj = 0.4, while that for stock K is bk = -0.5. (Note the negative sign) 1. If the risk-free rate is 9%, and the expected rate of return on an average stock is 13%, what are the required rates of return on stocks J and K? 2. For stock J, suppose the current price P0, is $25; the next expected dividend D1, is $1.50; and the stock's expected constant growth rate is 4%. Is the stock in equilibrium? Explain your answer and describe what will happen if the stock is not in equilibrium. Question Four: If an investor buys enough stocks, can he/she through diversification, eliminate all risk inherent in owning stocks? If yes, explain how this is done. If no, explain why not. Question Five: You are managing a portfolio of 10 stocks which are held in equal amounts. The current beta of the portfolio is 1.64, and the beta of stock A is 2.0. If stock A is sold, what would the beta of the replacement stock have to be to produce a new portfolio beta of 1.55

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