You must show your work - Excel worksheet
Q1. Company ABT has asked you to calculate the beta for their portfolio. The portfolio has the following stocks
|
Stock
|
$ Amount Invested
|
Beta for Each Stock
|
|
A
|
$ 350,000
|
1.2
|
|
B
|
$ 125,000
|
.75
|
|
C
|
$ 410,000
|
1.9
|
|
D
|
$ 280,000
|
1.7
|
Q2. Your friend has called you for some finance advice. Friend has heard you talk about the information that you have learned in your finance class.
Following is friend's question: Assume that the stock market will be decreasing for the year and friend is interested in investing in one of the following stocks.
The two stocks are:
Jumping High Beta 1.75
Going Long Beta -.8
Friend wants to maximize the value of the investment. Which stock should friend acquire - please explain.
Q3. You have been given the following information:
a. The required return of the market is 14.5%
b. The risk free rate is 3.5%
c. The beta for your investment is .95
Required:
A. Calculate the required rate of return for your investment, with the above data
B. Assume that that the risk free rate has decreased to 2.5% and the slope remains constant; calculate the new required rate of return for your investment.
Q4. Congrats on your new job managing the company's investment fund. The investment fund includes the following:
|
Stock
|
$ Amount Invested
|
Beta for Each Stock
|
|
A
|
$ 600,000
|
.8
|
|
B
|
$ 1,800,000
|
1.4
|
|
C
|
$ 2,400,000
|
1.7
|
|
D
|
$ 700,000
|
-.6
|
|
E
|
$ 3,000,000
|
1.1
|
You have been asked by the CFO to calculate the required rate of return for their investment.
In your research you found that the market's required return for Year 2017 is 12% and the risk free rate is 3%.
Show your work
A. Calculate the required rate of return for each stock in the portfolio
B. Calculate the required dollar return for each stock in the portfolio, based on your answer in A
C. Calculate the required rate of return for the entire portfolio
5. Here comes your friend again!!! Friend has another question --- in regarding investing what is the importance of understanding the purpose of Beta. How will you explain?
Attachment:- Assignment Files.rar