Reference no: EM132794306

1. You are a financial planner, who is helping a client that has $15,000,000 invested in the following five stocks:

Stock Ticker Beta Amount Invested

Google(Alphabet) GOOG $3,000,000

Intel Corp INTC $3,750,000

Cheesecake Factory CAKE $4,500,000

PepsiCo PEP $2,250,000

Disney DIS $1,500,000

Total =$15,000,000

a. Fill in the estimated beta for each of the client's stocks. To find the estimated beta for any given stock, go to Yahoo Finance and enter the company's ticker symbol. From there you will see some summary information which includes each company's beta. Only use Yahoo Finance, don't use any other sources.

b. What is the beta of your client's portfolio?

c. Assume that the risk-free rate, rRF, is 2.5%. The market risk premium, (rM - rRF), is 6.0%. What is the required rate of return on the client's investment portfolio? Carry your answer out to 4 decimal places.

d. Now assume that your client sells all her holdings in Cheesecake Factory and uses the proceeds to buy $4,500,000 worth of an exchange traded fund (ticker symbol SPY) that tracks the overall S&P 500 (and therefore has an estimated beta = 1.0). Following this shift, what would be the required rate of return on her portfolio? Carry your answer out to 4 decimal places.

e. If the overall stock market declines this year, would you expect this new portfolio to do better or worse than the original portfolio? (i.e., Which portfolio would be less hurt by the declining market?) Very briefly explain your answer.