User Account

All Pages

Calculate the expected returns

Assignment Help Finance Basics
Reference no: EM133002919

We are faced with the possibility of forming an equity portfolio, by combining an investment in two American stocks included in the S&P 500 index: Walt Disney (DIS US Equity) and Colgate Palmolive (CL US Equity).

We know the current prices of their quotes (DIS $ 33.84; CL $ 91.62) and the volatilities of both shares (DIS 17.89%; CL 15.0%). Likewise, we know that the correlation between the price of both stocks is 0.65 and that the Betas of both stocks with respect to the S&P 500 are 1.12 and 0.85, respectively. The 12-month analyst consensus target prices are DIS $ 38 and CL $ 100.6.

- Calculate the expected returns, volatilities and betas of the different combinations of both securities (assuming successive variations of 5% in the exposure levels).

-Graph the efficient frontier.

-What could we say about a portfolio made up of both titles with a volatility of 16.11% and that offered us an expected return of 10.80%?

-Knowing that we do not want to form a portfolio with a Beta greater than 1 and that, assuming that the expected returns follow a normal distribution, we do not want to bear a loss greater than -18.57% with a 95% probability, what combination of assets would we select?

Reference no: EM133002919

Questions Cloud

Assist in future budget preparation : Investigate and take appropriate action on significant deviations and Analyse changes in internal and external environment and make necessary adjustments
Can peaches collect the commission : Peaches Co., Inc. agreed to find a buyer. If this statute was intended to protect the public, can Peaches collect its commission? Explain in IRAC format.
Prepare the statement of cash flows using indirect method : Prepare the statement of cash flows using the indirect method. All beginning balance sheet accounts are .00. What aspects of the financial statements would deny
Why is using sales dollars as an allocation base usually : Why should a service department's budgeted costs, rather than its actual costs, be charged to operating departments? Could actual costs be used
Calculate the expected returns : We are faced with the possibility of forming an equity portfolio, by combining an investment in two American stocks included in the S&P 500 index: Walt
What way can the use of roi as a performance measure : What way can the use of ROI as a performance measure for investment centers lead to bad decisions? How does the residual income approach overcome
Calculate the npv of the proposed refunding : Uder Inc. is considering the possibility of refunding its $320 million outstanding bond. This bond has coupon rate of 15% (assume all coupons are paid annually
What is meant by customer service policy and procedure : Outline four ways you would communicate policies and procedures to staff. Explain what is meant by customer service policy and procedure
Challenges facing microfinance institutions in myanmar : 1. What are the challenges facing microfinance institutions in Myanmar?

Reviews

Write a Review

Finance Basics Questions & Answers

  Record the merger using the financial statement effects

Record the merger using the financial statement effects template or journal entries. How would the financial effects change if the cash paid was $2,000,000?

  Estimate the futures price of the index for a three-month

An index is currently at 1,200. The three-month risk-free rate is 3% per annum and the dividend yield over the next three months is 1.2% per annum.

  Decision to pursue an education in business or finance

Explain how you made the decision to pursue an education in Business or Finance. Include a summary of expenses related to that decision, such as: cost of tuition, cost of books, the interest you may pay on any loans, and any other associated expen..

  Significant investments in several opportunities

The Allied Group intends to expand the company's operation by making significant investments in several opportunities available to the group.

  Explain the many ways transaction costs are problematic

Explain the many ways transaction costs are problematic in financial markets. As part of your response give an actual example with a numerical breakdown that illustrates this problem.

  What is the total market value of the firm

Noelle owns 19 percent of The Toy Factory. She has decided to retire and wants to sell all of her shares in this closely held, all-equity firm.

  Another european vanilla call option with stike price k2 gt

the riskless interest rate rgt0the underlier is trading at a spot price s and all options are european vanillas on the

  What type of disability insurance to purchase

How would you communicate this fact to your clients, and advise what type of disability insurance to purchase?

  What is the value of this endowment in today dollars

Assuming the cost of money is 3%, what is the value of this endowment in today's dollars? Show your work.

  Net dollar sales projection for year

The marketing manager projects a 15 percent increase in unit volume sales this year with a 20 percent price decrease (due to a price reduction by a competitor). Returned merchandise will represent 12 percent of total sales. What is your net dollar..

  Difference between a firm cash cycle and operating cycle

What is the difference between a firm's cash cycle and its operating cycle?

  Why can an investor buy insurance on a risk

Why can an investor buy insurance on a risk that the investor does not actually have because the investor did not actually make the investment that is insured?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd