Business & Finance homework help. **Module 6 Critical Thinking Assignment**

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**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 |