Question
you plan to invest in a hedge fund, which has a total capital of R500 million invested in five types of shares. from share A
you plan to invest in a hedge fund, which has a total capital of R500 million invested in five types of shares. from share A to E investments are as follows consecutively: R160 million,R120 million,R80 million, R80 million and R60 million; Share's Beta Coefficient from Project A to E as follows consecutively: 0.5,1.2,1.8,1.0 and 1.6. the beta coefficient for the hedge fund as weighted average of its shares' betas. The risk-free rate is 6%, and you believe the following probability distribution for future market returns is realistic: probability from Project A to E as follows consecutively: 0.1,0.2,0.4,0.2,0.1 and market returns from Project A to E: -28%,0%,12%,30% and50%. required: 1. using market return data and risk-free information, derive security market line equation for the hedge fund, 2. calculate the required rate of return for the hedge fund, 3. suppose that the president of hedge fund receives a proposal from a company seeking new capital. the Amount needed to take a position in the share is R50 million, it has an expected return of 15%, and its estimated beta is 1.5. should the president invest in the new company? At what expected rate of return should the president be indifferent to the purchasing of the share?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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