problem1. You have $100,000 to invest in the portfolio holding stock X, Stock Y, and a risk-free asset. You should invest all of your money. Your goal is to make a portfolio which has an anticipated return of 11.22 percent and that has only 96 percent of the risk of the entire market. If X has an expected return of 15.35 percent and a beta of 1.55, Y has an anticipated return of 9.4 percent and a beta of .7, and the risk-free rate is 4.5 percent, how much money will you invest in the Stock X? How do you interpret your answer provide appropriate reason?
problem2. Find all the WACC. Given the following detailed information for Huntington Power Co., find the WACC. Suppose the company's tax rate is 35 percent. Debt: 5,000 6% coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 105% of par; the bonds create semi-annual payments. Common stock: 175,000 shares outstanding, selling for $58 per share; the beta is 1.10. Market: 7% market risk premium and 5% risk-free rate.
problem3. Preferred Stock and WACC. The Saunders Investment Bank has the following financing outstanding. What is WACC for company? Debt: 60,000 bonds with the coupon rate of 6% and the current price quote of 109.5' the bonds have 20 years to maturity. 230,000 zero coupon bonds with the price quote of 17.5 and 30 years till maturity. Preferred stock; 150,000 shares of 4 % preferred stock with the current price of $79, and a par value of $100. Common stock: 2,600,000 shares of common stock; the current price is $65, and the beta of stock is 1.15. Market: The corporate tax rate is 40%, the market risk premium is 7%, and risk-free rate is 4%.