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Question: Portfolio Risk and Return. Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10% and Tbills provide a riskfree return of 4%.
a. How would you construct a portfolio from these two assets with an expected return of 8%? Specifically, what will be the weights in the S&P 500 versus Tbills?
b. How would you construct a portfolio from these two assets with a beta of .4?
c. Find the risk premiums of the portfolios in (a) and (b), and show that they are proportional to their betas.
a. Use the given data to create a hedge against rising interest rates.b. Assume that interest rates in general increase by 200 basis points. How well did your hedge perform?c. What is a perfect hedge? Are most real-world hedges perfect? Explain.
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Bannister's profit margin is 5% and its payout ratio is 60%. How large a sales increase can the company achieve without having to raise funds externally?
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