Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem 1) A zero coupon bond with $100 face value is redeemable at par in exactly four years. You see from financial times that you can at present buy it for $68.3. Your alternative is to invest in a saving account, which pays no periodic interest and give a return of 10.5%. Would you buy the bond?

problem 2) Over the past three years (Year 1 to Year 3) the stocks of two companies, one plc and two plc, generated annual returns to shareholders as follows:

ONE Plc     TWO Plc     
Year 1     –5%     2%
Year 2     15%     1%
Year 3     12%     4%

(i) For each of the three years (Year 1, Year 2, Year 3), find out the annual return generated by a portfolio that is made up of the two stocks one and two with 80 percent of the portfolio invested in stock one and the rest in stock two.

(ii) Based on the annual portfolio returns, find out the expected (average) portfolio return and the standard deviation of portfolio returns.

(iii) Can the standard deviation of the portfolio returns be approximated as the weighted average of the individual stock returns? describe why or why not.

(b) Suppose the Capital Asset Pricing Model (CAPM) holds, compute the expected returns and the risk premia of the following two portfolios.

1. Portfolio 1 has a beta of 1.5; the return on the market portfolio Rm is expected to be 8% and the risk free rate Rf is 1%.

2. Portfolio 2: the estimated correlation coefficient between returns on Portfolio 2 and the market portfolio returns is 0.1, the standard deviation of the market portfolio returns is 3%, and the standard deviation of the returns of Portfolio 2 is 8%; the values of Rm and Rf are as for Portfolio 1.

In each of parts (b1) – (b2), clearly demonstrate the derivation of your results.

problem 3) You have £10,000 and are offered two investment products by a fund manager. The first product is a portfolio that consists of £6,000 worth of risk free treasury bills and £4,000 worth of QW plc shares. The second product is a portfolio that consists of £1,000 worth of QW plc shares and £9,000 worth of CX plc shares. The following information is available:

Return on treasury bills 4% per annum                                 (0.04 p.a.)

Expected rate of return on QW plc shares 15% per annum    (0.15 p.a.)

Standard deviation of QW plc shares 0.35

Expected rate of return on CX plc shares 7.7% per annum      (0.077 p.a.)

Standard deviation of CX plc shares 0.15

Correlation coefficient between QW and CX shares 0.40

Which one of these investment portfolios would you select and why?

Compute expected return/profolio variance/WACC?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M96225

Have any Question? 


Related Questions in Basic Finance

External capital funding proposal External capital funding proposal:  

External capital funding proposal:   For Keurigs Expansion to Europe IDEA:  Bring your finance and economics knowledge to bear by preparing an external capital funding proposal for a major international investment at a p ...

Complete the given assignment-two population meansa tomato

Complete the given assignment:- Two Population Means A tomato farmer with a very large farm of approximately 2200 acres had heard about a new type of rather expensive fertilizer which would supposedly significantly incre ...

1 discuss the differences between the following types of

1. Discuss the differences between the following types of mergers: a. Horizontal mergers b. Vertical mergers c. Conglomerate mergers 2. What are some of the reasons why firms merge with other firms? 3. What methods do fi ...

1 what are some of the factors that make up a communitys

1. What are some of the factors that make up a community's economic profile? How do these factors influence that community's disaster risk? 2. Visit FEMA's disaster declaration archive at http://www.fema.gov/news/disaste ...

1 outline the differences between npv irr and pi what are

1. Outline the differences between NPV, IRR, and PI. What are the advantages and disadvantages of each technique? Do they agree with regard to simple accept or reject decisions? 2. Under what circumstances will the NPV, ...

1 describe and contrast the role of rfdc and rfid for

1. Describe and contrast the role of RFDC and RFID for logistics and supply chain applications. 2. Discuss the relative benefits of software purchase, use of third-party providers, and use of application service provider ...

Go to one of the web sites that contain video clips such as

Go to one of the Web sites that contain video clips (such as www.youtube.com) and view some video clips about banking tips. You can use search phrases such as "banking tips." Select one video clip on this topic that you ...

Insurance policiesplease answer the following questions

Insurance Policies Please answer the following questions with complete sentences. Questions that ask for your analysis and opinion must state more than just a conclusion...you must also provide your reasoning and/ or fac ...

A company you are researching has common stock with a beta

A company you are researching has common stock with a beta of 1.20. Currently, Treasury bills yield 4%, and the market portfolio offers an expected return of 13%. The company finances 20% of its assets with debt that has ...

Beta ltd just paid a dividend of 040 and dividends are paid

Beta Ltd just paid a dividend of $0.40 and dividends are paid once a year. Dividends are expected to grow at 4% p.a. for each of the next five years and then to remain constant forever. Assume a required rate of return o ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen