Ask Question, Ask an Expert


Ask Basic Finance Expert

Mini Case:  Risk, Return, and the Capital Assets Pricing Model

Andrea Corbridge is considering forming a portfolio comprising of Kalama Corp. and Adelphia Technologies.  The two corporations have a correlation of -0.1789, and their expected returns and stand deviations are as follows:

                                Kalama Corp.    Adelphia Technologies
Expected return (%)       14.86                         23.11
Standard deviation (%)    23.36                         31.89

problem 1
a. Compute the frontier for all possible investment combinations of Kalama Corp. and Adelphia Technologies (from 0% to 100%, in 1% increments).
b. Find out the optimal risky portfolio if the risk-free rate is 3%.
problem 2
Andrea has $50,000 and wants to earn a 19% expected return on her investment.
a. What is the optimal manner in that to structure her portfolio both in dollars and in weights relative to her $50,000 based on the preceding information?
problem 3
Andrea is as well seriously considering buying some stock in Medford Barnett Corporation (MBC).  The stock prices of MBC and the Standard & Poor (S&P) for the past 25 months are tabulated below.  Andrea estimates that MBC will earn a 14% return throughout the next year, and she expects the market to earn a 12% return during the same time period.  In addition, she anticipates the relationship exhibited between the S&P and MBC to remain as it has in the past.

a. Supposing that Andrea would be pulling MBC into a fully diversified portfolio, is buying the MBC shares a good decision?

Tabulated Table
Month           S&P                   MBC
1                 1,198.41          58.04
2                 1,228.81          65.36
3                  1,220.33         48.48
4                 1,234.18          53.32
5                 1,191.33          57.59
6                 1,191.50         49.23
7                 1,156.85         55.57
8                 1,180.59         50.99
9                1,203.60          64.10
10               1,181.27         50.45
11               1,211.92        50.65
12                1,173.82       51.23
13               1,130.20        46.68
14               1,114.58        51.09
15               1,104.24        50.75
16               1,101.72        59.80
17               1,140.84        52.78
18               1,120.68        49.22
19               1,107.30        53.47
20                1,126.21       49.26
21                1,144.94       48.55
22                 1,131.13      61.32
23                1,111.92      48.06
24                1,058.20      58.88
25                1,050.71       46.19

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91065

Have any Question? 

Related Questions in Basic Finance

1 what is the yield to maturity for an 8 percent bond

1. What is the yield to maturity for an 8 percent bond, paying coupon semi-annually that has 15 years until maturity and sells for $975? 2. There are regulations that prohibit "insider trading," which is the use of nonpu ...

Determine the mass transfer coefficient kc for the transfer

Determine the mass transfer coefficient, kc, for the transfer from a glucose sphere, 0.3 cm in diameter, which is sub merged in a 25°C aqueous stream flowing at a bulk velocity of 0.15 m/s. The mass diffusivity of glucos ...

1 in addition to the key words you should also be able to

1. In addition to the key words, you should also be able to define the following terms: statistical significance, or statistically significant practical significance or clinical significance 2. Describe the similarity be ...

Consider a period in which the us dollar weakens against

Consider a period in which the US dollar weakens against most foreign currencies. How does this affect the reported earnings of a US-based MNC with subsidiaries all over the world? Consider a period in which the US dolla ...

1 when and why would nonprobability sampling methods be

1. When and why would nonprobability sampling methods be used? 2. Under what conditions is sampling bias likely to occur, what are its effects on generalization, and how can it be avoided? 3. Indicate the similarities an ...

Which financial variable must be multiplied by the return

Which financial variable must be multiplied by the return on assets ratio in order to calculate the return on stockholders' equity ratio? Which financial ratio assesses management performance by measuring the profitabili ...

Toynbspcorpnbspis analyzing its optimal capital structure

Toy Corp. is analyzing its optimal capital structure. Currently, Toy's capital structure includes 10% debt and the company is planning to triple (3x) its debt capitalization.  Assume that the current risk-free rate is 3. ...

As a percentage of yield whats the minimum and maximum

As a percentage of yield what's the minimum and maximum tensile stress to be seen by a production quantity of these bolts? With the estimated minimum in-service tensile stress in mind, what possible bolt or joint failure ...

1 comment on the following statement a key benefit of

1. Comment on the following statement: A key benefit of leasing is that it allows for the effective depreciation of land. 2. How would the availability of floating-rate debt rather than fixed-rate debt affect the lease-v ...

1 give five examples of physiological measures2 what

1. Give five examples of physiological measures. 2. What considerations must a researcher keep in mind when writing the questions to be used on a questionnaire or in an interview? 3. What is a double-barreled question? 4 ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro