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1) Which of given statements is right?

i) Accountants are focused on what happened in past.

ii) Financial managers are focused on what occurred in past.

iii) Financial managers double-check accountant's statements.

iv) Both accountants and financial managers utilize total quality management systems to normalize data.

2) Here are data on 2 companies. T-Bill rate is 4% and market risk premium is 6%

Company Victoria Store Houston Store
Forecasted return 12 11 %
Standard Deviation of Returns 8 % 10 %
Beta 1.5 1.0

i) Estimate expected return for each company according to CAPM.

ii) Differentiate each company as overpriced, underpriced, or properly priced according to CAPM

iii) Another company, Sugar Land store, has a beta of= 2.0. Suppose efficient market hypothesis (CAPM holds), evaluate expected rate of return for portfolio consisting of 1/3 Victoria stock, 1/3 Houston stock, and 1/3 Sugar Land store.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914855

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