User Account

All Pages

Estimated equation for the security market line

Assignment Help Finance Basics
Reference no: EM132540508

Morden Company Investment Fund has a total investment of $400 million in five stocks:

Stock Investment Beta

A $120 million 0.5

B $100 million 2.0

C XX 4.0

D $80 million 1.0

E $40 million 3.0

The risk-free rate is 7%, and the market return has the following probability distribution: Probability Market Return

0.1 8%

0.2 10%

0.4 12%

0.2 14%

0.1 16%

a. What is the estimated equation for the security market line (SML)?

b. Compute the required rate of return on the fund.

c. Suppose the management receives a proposal for a new stock. The investment needed to take a position in the stock is $50 million; it will have an expected return of 16%; and its estimated beta coefficient is 2.5. Should the new stock be purchased? At what expected rate of return would management be indifferent to purchasing the stock?

Reference no: EM132540508

Questions Cloud

Find what is the ending total asset balance : Net sales are $3,000,000, beginning total assets are $1,400,000, and the asset turnover is 2.5 times. What is the ending total asset balance?
Negative impact on the environment : We have seen in the news how certain companies are portrayed as having a negative impact on the environment either through carelessness or negligence.
Calculate the company debt-to-equity ratio : Saved Soaring Eagles Corp. has total current assets of $11,152,000, current liabilities of $5,624,000 and a quick ratio of 0.73.
Principles of operational excellence : Any company, regardless of size, product or service, is one to which you can apply the principles of operational excellence.
Estimated equation for the security market line : Morden Company Investment Fund has a total investment of $400 million in five stocks:
What financial ratios an hr consultancy firm would use : Explain what financial ratios an HR consultancy firm would use, and that which would not be used use for decision making. State reasons for your assertions.
Make a direct materials budget for gilden : Make a direct materials budget for Gilden, by month and in total, for the third quarter. Also make a schedule of expected cash disbursements for Gilden
How long will it take to reach goal : Upon graduating from college, you make an annual salary of $51,454. You set a goal to double it in the future. If your salary increases at an average annual
Create business model canvas : The purpose of this assignment is to create a business model canvas, highlighting how human-centered design and technological advances

Reviews

Write a Review

Finance Basics Questions & Answers

  What percent of peters after tax income is replaced by ui

Peters earnings are taxed at a rate of 15 percent by the personal income tax and at a combined rate of 7.45 percent by the Social Security and Medicare payroll.

  Change in capital structure

Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes.

  Istinguish between a traditional and a cvp income statement

Provide three examples of management decisions that benefit from CVP analysis. Distinguish between a traditional income statement and a CVP income statement.

  Briefly describe the process for projecting financial statem

Briefly describe the process for projecting financial statements.

  What alternatives are available to a failing firm

Why do you think it is easier for firms with weak credit positions to obtain lease financing than bank loan financing? Explain the difference between economic and financial definitions of business failure. What alternatives are available to a fail..

  Investment policy statement

Recommend and justify a long-term asset allocation that is consistent with the investment policy statement you created in Part a.

  What is the weighted average cost of capital

Its pretax cost of preferred equity is 7%, and its pretax cost of debt is also 5%. If the corporate tax rate is 35%, what is the weighted average cost of capital?

  Academic approach-time value of money

What is the "time value of money" and how does it affect a financial manager's decision regarding cash flows? What is an annuity? Why might annuities be useful to a corporation?

  Calculate the economic run size for hosuing

The annual holding cost for these motors is $1. Calculate the economic run size for this hosuing. Elctric Sheep operates 250 days per year.

  Briefly explain of your treatment of salvage value

Evaluate the project and advise whether it should be accepted or rejected - capital on any investment returned in no more than 2.5 years

  What is the pi for mulligan current project

That way Mulligan can get an idea as to which project might be a better choice. What is the PI for Mulligan's current project?

  Please create spreadsheet explaining atp steps

Please create spreadsheet explaining ATP steps COlumn A are the steps

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