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FIN500 Week Three Homework Assignment

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Question;Work should be done;individually.Word-process your solutions within this template and show all;steps used in arriving at the final answers. Incomplete solutions will receive;partial credit. Copy and paste all necessary data and create tables as needed.;1.;The expected returns earned from;investment in the stock of two companies, Company A and Company B, are shown in;the following table. Use the table to complete parts (a) through (c) below.;Demand for Product;Probability of Demand;Expected Return: Stock A;Expected Return: Stock B;Strong;0.3;40%;20%;Normal;0.45;20%;5%;Weak;0.25;0%;(5%);(a);Compute the expected rates of return;for each stock.;(b);Compute the standard deviations for;each stock.;(c);Compute the coefficient of variation;for each stock. Based on the coefficient of variation, which stock has the;higher risk for investment?;2.;The expected returns earned from;investment in the stock of two companies, Company A and Company B, are shown in;the following table. Assume a two-stock portfolio with $25,000 in Company A and;$75,000 in Company B. Compute the expected return on the portfolio.;Demand for Product;Probability of Demand;Expected Return: Stock A;Expected Return: Stock B;Strong;0.3;40%;20%;Normal;0.45;20%;5%;Weak;0.25;0%;(5%);3.;Suppose you have a portfolio;consisting of three stocks. You invest a total of $200,000 in the stocks. The;investments and beta for the stocks are shown in the following table. Use the;table to complete parts (a) through (c) below.;Stock;Investment;Beta;1;$60,000;1.25;2;$40,000;(0.5);3;$100,000;1.5;(a);Assume the risk-free rate is 5.5% and;the expected return for the market is 10%. Estimate the appropriate required;rate of return for each stock.;(b);Compute the portfolio beta.;(c);Find the portfolio?s required rate of;return, assuming the same risk-free rate and expected return for the market as;in part (a).

 

Paper#45213 | Written in 18-Jul-2015

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