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You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: 1.7 Stock Investment Stock's Beta

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You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: 1.7 Stock Investment Stock's Beta Coefficient A $160 million 0.4 B 120 million 1.4 80 million 2.0 D 80 million 1.0 E 60 million Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 7%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return 0.1 -27% 0.2 0 0.4 11 0.2 30 0.1 47 a. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) I. n = 7.0% + (6.7%); II. - 6.3% + (5.4%); III. 6.3% + (6.7%) IV. n = 7.0% + (5.4%)bi V. n = 6.6% + (4.7%)b -Select- b. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % c. Suppose Rick kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 16%, and its estimated beta is 1.5. Should Kish invest in the new company? Thank Select hatched a. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) I. n = 7.0% + (6.7%)b 11. 6.3% + (5.4%)b III. n = 6.3% + (6.7%) IV. n = 7.0% + (5.4%) V. = 6.6% + (4.7%) -Select- b. Calculate Kish's required rate of return. Do not round Intermediate calculations. Round your answer to two decimal places. 5% c. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, It has an expected return of 16%, and its estimated beta is 1.5. Should Kish invest in the new company? The new stock -Select- be purchased. At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places. %

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