User Account

All Pages

Find the portfolio beta and required return

Assignment Help Financial Management
Reference no: EM131537296

You plan to invest in a portfolio fund. The fund’s total capital is $150 million, which is invested into stock FIB ($60 million) and stock ATM ($90 million). Stock FIB has a beta of 0.8 and stock ATM has a beta of 1.3. The following is probability distributions for the future possible returns of both stocks:

Probability Stock FIB Stock ATM

.3 2% -10%

.5 5% 16%

.2 14% 26%

Currently, the yield of treasury security is 2% and market risk premium is 4%.

a. Find the portfolio’s expected return

b. Find the portfolio’s beta and required return.

c. Identify whether the portfolio is undervalued, fair valued, or overvalued.

d. Explain market reaction and adjustment process in the market for this portfolio fund.

e. Draw the Security Market Line(SML), write the equation of the SML line, plot the portfolio’s required return and expected return, and indicate to which direction the expected return should move.

Reference no: EM131537296

Questions Cloud

Net new investment in operating capital-interest expense : Juicers expects Fast Fruit's NOPAT to be $9 million the first year, with no net new investment in operating capital and no interest expense.
Where is the beginning balance of retained earnings found : What financial information does a statement of stockholders' equity report?
What is the net present value of project : What is the net present value (NPV) of the project if the company’s cost of capital is 9.41 percent?
Demonstrate logical structure and layout of the organization : ECM34KM - KNOWLEDGE MANAGEMENT ASSIGNMENT. Identify and present the issues/challenges within the context of the assigned task and from this demonstrate a logical structure and layout of the organization
Find the portfolio beta and required return : Find the portfolio’s expected return. Find the portfolio’s beta and required return. Identify whether the portfolio is undervalued, fair valued.
Prepare a journal entry for payment of the withheld taxes : Paying withholding and payroll taxes A cash payments journal page is given in the Working Papers. Your instructor will guide you through the following examples.
Discuss the main differences-preferred stocks and bonds : Describe the main differences between an over-the-counter market and an organized exchange. Discuss the main differences, preferred stocks, and bonds.
Healthcare information system : What are the clinical, financial, and administrative functions provided by a healthcare information system (HCIS), and what are the potential benefits of implem
What is the internal growth rate : If the profit margin, total asset turnover, and dividend payout ratios for ABI remain unchanged, what is the internal growth rate it can achieve

Reviews

Write a Review

Financial Management Questions & Answers

  How do they earn their return on equity

Different companies have different financial ratios. So Return on Equity for any one company is the product of three ratios which may be quite different in value than the same three ratios for a different company.

  Unusual income requirements or health problems

Max and Veronica have no unusual income requirements or health problems. Describe the type of bond investment program you think the Shuman family should follow.

  Federal reserve tightens credit and firm uses more debt

How would each of the following scenarios affect a firm's cost of debt Rd(1-T), its cost of equity, Rs, and its WACC? Indicate with a plus(+), a minus (-) or a zero (0) if the factor would raise, would lower or would have an undeterminable effect on ..

  Financial distress different from agency benefit of leverage

What are agency costs, and how are agency costs of financial distress different from agency benefits of leverage? Explain their impact on calculating the value of a firm with financial distress.

  For sales promotion and local advertising

Bernie’s Bike Shop receives the following trade discounts: 35/25/15. The vendor’s price list indicates that 35 percent off list price is for purchasing bikes in quantities of 100 or more, 25 percent off list price is for assembling the bikes for cust..

  Diversified investments

Diversified Investments. Hofstra, Inc., has no European business and has cash invested in six European countries, each of which uses the euro as its local currency. Are Hofstra’s short-term investments well diversified and subject to a low degree of ..

  Strategic alliance-what are the goals of each alliance

Using an Internet search engine, search for “strategic alliance” and identify three recently formed alliances. For each alliance, identify whether the companies’ other products are generally competitors or complementary products. What are the goals o..

  What strategic financial management encompasses

Organizations can differ on their view of what strategic financial management encompasses. What is an appropriate definition from your point of view (perhaps augmented by some Internet research)? Is your view consistent with usual current practice? D..

  What is your bonds rate of return over the year

You buy a(n) 5.2% coupon, 6-year maturity bond for $943. A year later, the bond price is $1,048. Assume coupons are paid once a year and the face value is $1,000. a. What is the new yield to maturity on the bond (one year from now)? (Do not round int..

  How much are the fixed costs of producing the course packs

Southwest U's campus book store sells course packs for $16 each. The variable cost per pack is $10, and at current annual sales of 51,000 packs, the store earns $75,000 before taxes on course packs. How much are the fixed costs of producing the cours..

  What insight does ROI give into investment performance

What insight does ROI give into investment performance? Is it acceptable to lose product on one product, if that product is vital to the sale of an extremely profitable product? Please explain why?

  Option strategies has the greatest amount of investor risk

Which of the following option strategies has the greatest amount of investor risk?

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