Reference no: EM132872488
Questions -
Q1. You are a portfolio manager of a $4 million fund consisting of the following stocks:
|
|
Invested Amount
|
Beta
|
Expected Return
|
|
AgriBio-Tech Ltd.
|
$750,000
|
1.90
|
12.5%
|
|
Western Bank Ltd.
|
1,250,000
|
0.75
|
6.75%
|
|
General Auto Ltd.
|
2,000,000
|
1.20
|
9.00%
|
Assume the risk-free rate is 3% and the market return is 8%.
1. What return should you expect from the portfolio, based on the individual stock's expected return?
2. What return should you require from the portfolio, based on the individual stock's beta?
3. You are considering another stock, Pacific Petroleum, to add to the Portfolio that has a stock beta of 2.3. What is the required return for Pacific Petroleum stock?
4. If the expected return for Pacific Petroleum is 14%, should you buy this stock?
Q2. Maxwell Corp. wants you to prepare Cash budget for the Christmas period. It has arranged a line of credit with the bank to borrow against whenever cash is needed. Sales are made on credit basis with terms of 1/10 net 30. The collection of sales are estimated to be: 10% in the month of sale and will take the discount, 75% in the following month and not take the discount, and 15% in the second month following and not take the discount. Purchases are all paid in the following month. Salaries are $4,800 per month and rent is $2,000 per month. A tax payment of $12,000 must be made in December. The current cash on hand is $1,000 but management wants a target minimum balance of $6,000.
The sales and purchases for the months are:
|
|
Sales
|
Purchases
|
|
October
|
$120,000
|
$40,000
|
|
November
|
$140,000
|
$40,000
|
|
December
|
$160,000
|
$20,000
|
|
January
|
$80,000
|
$20,000
|
|
February
|
$40,000
|
$20,000
|
Required - Prepare cash budget for December, January, and February.