1. You invest 35% of your money in stock GPS and 65% of your money in stock BRS. There are 2 possible states of the world that will occur once you invest in these stocks. There is a 60% probability of State 1, and a 40% Probability of State 2. In State 1, GPS returns 30% and BRS returns -5%. In State 2, GPS returns -10% and BRS returns 25%. Calculate the expected return on the portfolio.
2. Consider a portfolio with stocks A, B, and C. The total value of the portfolio is $245,000 and it is fully invested in these 3 stocks. $85,653 is invested in A and $69,552 is invested in B. The Betas of stocks A, B, and C are 1.2, .8, and 1.62, respectively. What is the Beta of the portfolio overall?
3. What is the WACC for a company with the following information: Equity Information: 50 million shares, $80 per share, Beta = 1.15, Market risk premium = 9%, Risk-free rate = 5%. Debt Information: 1 million outstanding bonds with a face value of $1,000 each. Current Price = $1,100, Coupon rate = 9%, semiannual coupons, 15 years to maturity Tax rate = 20%