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The McAlhany Investment Fund has total capital of $500 million invested in five stocks:
The Stock, Investment Amt, And Stocks Beta Coefficient are as follows:Stock A 160 Million 0.5; Stock B 120 Million 2.0; Stock C 80 Million 4.0; Stock D 80 Million 1.0; Stock E 60 Million 3.0
The current risk free rate is 8%. Market returns have the following estimated probability distribution for the next period: Prob 0.1 Market Return 10%; 0.2 12%; 0.4 13%; 0.2 16%; 0.1 17%
A. Compute the expected return for the marketB. Compute the beta coefficient for the investment fund (Remember this involves a portfoliio)C. What is the estimated equation for the security market line?D. Compute the funds required rate of return for the next period.E. Suppose John McAlhany recieves a proposal for a new stock. The investment needed to take a postion in the stock is $50 million-the expected return is 18%, estimated beta coefficient is 2.0. Should the firm purchase the new stock? At what expected rate of return should McAlhany be indifferent to purchasing the stock?
What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X? (can you show me the math of how to get the right answer) Can you put the above scenario in the context of a real world example?
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