Is your broker right, You decide to follow your finance

Is your broker right

Reference no: EM13303732

You are currently only invested in the Natasha Fund (aside from risk-free securities). It has an expected return of 14% with a volatility of 20%. Currently, the risk-free rate of interest is 3.8%. Your broker suggests that you add Hannah Corporation to your portfolio. Hannah Corporation has an expected return of 20%, a volatility of 60%, and a correlation of 0 with the Natasha Fund.

a. Is your broker right?

b. You follow your broker's advice and make a substantial investment in Hannah stock so that considering only your risky investment, 60% is in the Natasha Fund and 40% is in the Hannah stock. When you tell your finance professor about your investment, he says that you made a mistake and should reduce your investment in Hannah. Is your finance professor right.

c. You decide to follow your finance professor's advice and reduce your exposure to Hannah. Now Hannah represents 15% of your risky portfolio, with the rest in the Natasha fund. Is this the correct amount of Hannah stock to hold?

Reference no: EM13303732

Questions Cloud

What will be her capital gain from holding the bond : If market conditions do not change--that is market interest rates remain constant--and Stephanie sells the bond in 12 months, what will be her capital gain from holding the bond?

Evaluate two alternatives in terms of the effect on price : Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth.

Find the wavelength as measure by an earth observer : A star is moving away from Earth at a speed of 2.4 X 10^8 m/s. find the wavelength as measure by an Earth observer

What is the intensity of the incident light : Unpolarized light is incident on a system of three polarizers. The second polarizer is oriented at an angle of 30 degrees with repect to the first, what is the intensity of the incident light

Is your broker right : You decide to follow your finance professor's advice and reduce your exposure to Hannah. Now Hannah represents 15% of your risky portfolio, with the rest in the Natasha fund. Is this the correct amount of Hannah stock to hold?

Determine the cost of the finished goods inventory : Determine the cost of the finished goods inventory of light-gauge aluminum and prepare an income statement for the current year ended December 31

What is the frequency of this reflected sound : Your clock radio awakens you with a steady and irritating sound of frequency 600 Hz. One morning, it malfunctions and cannot be turned off. What is the frequency of this reflected sound

Use the borrowed funds to repurchase outstanding shares : Management plans to borrow $200 million on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares.

What is the present value of bbb financial distress costs : If the price of BB's stock rises to $10.80 per share following the announcement, then what is the present value of BBB's financial distress costs?

User Account

All Pages