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 |