Reference no: EM133006697

Question - A. AmDa's common stock has a beta of 1.4. The market risk premium is 5% and the riskfree rate is 2%. What is the required rate of return on this stock according to CAPM?

B. An investment Analysist provide the following data regarding the possible future returns on AmDa's common stock:

State of economy	Probability	Return
Recession	0.25	-1.4%
Normal	0.45	9.4%
Boom	0.30	15.4%

i. Compute the expected return on the security?

ii. Compute the standard deviation on the security?

iii. Compute the Coefficient of variation?

C. Given the results of A. & B. above, explain to an investor whether to Buy, Sell or Hold AmDa's common stock.

D. You have recently received $400,000 and you are considering investing $250,000 in the WIG and the remainder in TJH. Your analysis of each stock revealed the following information. The Expected Returns of both companies are 8% and 6% respectively and the Standard Deviations are 7% and 9% respectively. The correlation between the companies is 0.5.

i. Compute the expected return of the portfolio.

ii. Compute the standard deviation of the portfolio.

E. Given the results of D and any other computations, you deem relevant from the information presented, explain whether a rational risk-averse investor would prefer to invest in the suggested portfolio or 100% in WIG or 100% in TJH.