Reference no: EM133058234
1. Suppose Wesley? Publishing's stock has a volatility of 50 %, while Addison? Printing's stock has a volatility of 25 %. If the correlation between these stocks is 25 %, what is the volatility of the following portfolios of Addison and? Wesley:
a. 100 % Addison
b. 75 % Addison and 25 % Wesley
c. 50 % Addison and 50 % Wesley
2. Your investment portfolio consists of ?$18,000 invested in only one stock - Amazon. Suppose the? risk-free rate is 4 %, Amazon stock has an expected return of 11 % and a volatility of 44 %, and the market portfolio has an expected return of 12 % and a volatility of 17 % Under the CAPM? assumptions,
a. What alternative investment has the lowest possible volatility while having the same expected return as? Amazon? What is the volatility of this? investment?
b. What investment has the highest possible expected return while having the same volatility as? Amazon? What is the expected return of this? investment?
Hint?: Make sure to round all intermediate calculations to at least five decimal places.?
a. What alternative investment has the lowest possible volatility while having the same expected return as? Amazon?
What is the investment that has the lowest possible volatility while having the same expected return as? Amazon, we use the following? strategy:
?Sell: ?$____ worth of Amazon stock. ?
?Borrow: $____ at the? risk-free rate. ?
?Buy: $____ worth of the market portfolio.
?Buy: $____ worth of the? risk-free investment.
3. IDX Tech is looking to expand its investment in advanced security systems. The project will be financed with equity. You are trying to assess the value of the? investment, and must estimate its cost of capital. You find the following data for a? publicly-traded firm in the same line of? business: By making some realistic? assumptions, estimate the? project's beta.
The estimated? project's beta is ____
Table
Debt outstanding? (book value,? AA-rated) $337 Million
Number of shares of common stock $81 Million
Stock Price per share $13.77
Book value of equity per share $7.13
Beta of equity 1.21
4. Harrison? Holdings, Inc.? (HHI) is publicly? traded, with a current share price of $ 31 per share. HHI has 30 million shares? outstanding, as well as $ 67 million in debt. The founder of? HHI, Harry? Harrison, made his fortune in the fast food business. He sold off part of his fast food? empire, and purchased a professional hockey team.? HHI's only assets are the hockey? team, together with 50 % of the outstanding shares of? Harry's Hotdogs restaurant chain.? Harry's Hotdogs? (HDG) has a market capitalization of $ 884 ?million, and an enterprise value of $ 1.09 billion. After a little? research, you find that the average asset beta of other fast food restaurant chains is 0.79. You also find that the debt of HHI and HDG is highly? rated, and so you decide to estimate the beta of both? firms' debt as zero.? Finally, a regression analysis on? HHI's historical stock returns in comparison to the? S&P 500, and estimate an equity beta of 1.38. Given this? information, estimate the beta of? HHI's investment in the hockey team.
?HHI's asset beta is ___.