Why is it important to consider purchasing an asset

Reference no: EM13305757

Laura Spegele is considering purchasing a stock that youbelieve will offer an inferior return for the risk she willbear. To convince her that her acquisition is not desirable,you want to demonstarte the trade-off between risk andreturn.
Currently U.S treasury bills offer 7%. Three possible stocksand their betas are as follows:
Security ExpectedReturn Beta
StockA 9% 0.6
StockB 11 1.3
StockC 14 1.5
T-bills no beta = 0
1. What will be the expected return and beta for each of thefollowing portfolio's?
a) Portfolio's 1-4 : All of the funds are invested soleyin one asset (the corresponding three stocks or the TreasuryBill)
b) Portfolio 5: One-quarter of the funds are invested in eachalternative.
c) Portfolio 6: One-half of the funds are invested in Stock Aand one-half in Stock C.
d) Portfolio 7: One-third of the funds are invested in eachstock.
2. Are any of the portfolio's inefficient?
3. Is there any combination of the Treasury Bill Stock C thatis superior to portfolio 6(i.e., half the funds in stock A and halfin stock C)?
4. Since your client's suggested stock has an anticipatedreturn of 12 percent and a beta of 1.4, does that information arguefor or against the purchase of the stock> Compare.
5. Why is it important to consider purchasing an asset as partof a portfolio and not as an independent act?

Reference no: EM13305757

Questions Cloud

Determine the magnitudes of the velocity of point o : The two pulleys are riveted together to form a single rigid unit, and each of the two cables is securely wrapped around its respective pulley. If point A on the hoisting cable has a velocity v=0.9 m/s,

Which of these stocksare suitable for investment : In your opinion, whether the KSE has over-priced or under-pricedeach stock and in the light of these results, which of these stocksare suitable for investment?

Determine the torque on the particle about the origin : Force F = -13jhatN is exerted on a particle at r = (3ihat+5jhat)m. What is the torque on the particle about the origin

Determine the magnitude of the force in member bc : Assume for your calculations that each member is in tension, and include in your response the sign of each force that you obtain by applying this assumption.

Why is it important to consider purchasing an asset : Laura Spegele is considering purchasing a stock that youbelieve will offer an inferior return for the risk she willbear. To convince her that her acquisition is not desirable,you want to demonstarte the trade-off between risk andreturn.

How a cost-efficient capital market help reduce the price : How does a cost-efficient capital market help reduce the prices of goods and services?

What business scenario may the data be illustrating : Outline your interpretation of the brief, please highlight any questions that you may ask to clarify requirements and why this is important to meet the output requirements

Which action would be better : Which action would be better? Think of some specific corporate actions that have these general tendencies.

Determine the horsepower required for the motor : The new EV-1 electric car makes use of storage batteries as its source of energy. Its mass is 1580 kg and it is powered by 29 batteries, Determine the horsepower required for the motor

User Account

All Pages