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You and your Team have to brief the head of a hedge fund, Mr. Moneypockets, who is thinking about creating a portfolio investing just in these three stocks, for a major client of his that is willing to invest $100M in this particular portfolio. However, since this is a very large amount of money, relatively speaking, he wants your team to advise him on his idea. The volatility of his proposed market portfolio is 10% and it has an expected return of 8%, The risk free rate is 3%, and is based on appropriate U.S. government securities ("Treasuries"). The portfolio weights, volatility and correlation with the market portfolio of his three stocks are given in the table below: Portfolio Weight Volatility Correlation with Market Portfolio Yahoo 0.25 12% 0.4 Microsoft 0.35 25% 0.6 Google 0.40 13% 0.5 1. If you (and his client) expect to receive a rate of return 9% on this portfolio , would your Team recommend investing in this portfolio? Explain your team rationale to Mr. Moneypockets. 2. Assume the CAPM correctly prices risk, does your Team think the market portfolio is efficient? Explain why or why not to Mr. Moneypockets.
Stock R has a beta of 2.1, Stock S has a beta of 0.45, the expected rate of return on an average stock is 9%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exce..
How do these two loans compare on 1) monthly payments 2) total interest due over life of the loan?
On June 1, you borrowed $195,000 to buy a house. The mortgage rate is 5.25 percent. The loan is to be repaid in equal monthly payments over 15 years. All taxes and insurance premiums are to be paid separately. The first payment is due on July 1. How ..
Find the expected gain (or loss) for a holder of a European put option with strike price $65 to be exercised in 10 months
Draw a graph of Call option from the buyer’s perspective and find the break-even price.
Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Assume for a certain time period, long-term corporate bonds had an average return of 5.3% and a standard deviation of 8.1%. How likely is it that such a high retur..
If the bank does hedge with the forward contract, what is the maximum amount it can lose?
What is Crypton's cost of capital where the firm's tax rate is 30 percent?
Carey exchanges real estate for other real estate in a qualifying like-kind exchange. alculate Carey’s basis in the property received.
The process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements is referred to as.
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future.
If the reinvestment assumption of the internal rate of return method is used, what will be the total value of the inflows after five years?
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