Business & Finance homework help. Module 6 Critical Thinking Assignment

The Meaning and Measurement of Risk and Return

 Problem 6-1: Portfolio Beta (Chapter 6) Your investment club has 3 stocks in its portfolio, as follows: Amount Invested Beta 20,000 0.6 40,000 1.6 40,000 1.2 What is the portfolio’s beta? Problem 6-2 Rate of return (Chapter 6) BB Corporation’s stock has a beta of 1.2. The risk-free rate is 5% and the expected return on the market is 13%. What is the required rate of return on BB Corporation’s stock? Problem 6-3 CAPM (Chapter 6) Suppose the risk-free rate is 4% and the market risk premium is 8%. What is the required rate of return on (1) the market, (2) a stock with a beta of .8, and (3) a stock with a beta of 1.8? Problem 6-4 Calculating beta (Chapter 6) Given the following: Rate of return on Company Z 16% Market rate of return 12% Risk free rate 4% 1. Calculate Company Z’s beta 2. If Company Z’s beta is 2.2, what would be the new required rate of return Problem 6-5 Portfolio rate of return (Chapter 6) Suppose you manage a portfolio that consists of the following stocks: Stock Investment Beta A 500,000 0.8 B 2,250,000 1.4 C 1,750,000 -0.7 D 1,500,000 1.3 If the market’s required rate of return is 12% and the risk-free rate is 3%, what is the fund’s required rate of return? Problem 6-6 Standard deviation (Chapter 6) Given the following information, calculate the expected return for the portfolio and the standard deviation. SHOW your work. DATA Probability Returns 0.40 5% 0.30 7% 0.20 12% 0.10 20% Problem 6-7 Holding period gain (Chapter 6) Suppose you purchased 40 shares of XYZ stock for SAR 350.00 on February 1. You sell the 40 shares of stock on October 1 of the same year for 672.40. No dividends were paid during the year. 1. Calculate the holding period gain 2. Calculate the holding period return