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fin 500 accounting problems

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Question;FIN500;Week Three;HomeworkAssignment;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).;Problem 4A stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return,and a 25% chance of producing a -18% return. What is the stock's expected rate of return?Problem 5Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a betaof 1.20. You are in the process of buying 1,000 shares of stock selling at $10 a share and addingit to your portfolio. The newly purchased stock has an expected return of 13.0% and a beta of1.50. The total value of your current portfolio is $90,000. What will the expected return and betaon the portfolio be after the purchase of the new stock?Problem 6Calculate the required rate of return for a stock assuming that (1) investors expect a 4.0% rate ofinflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4)the stock has a beta of 1.00, and (5) its realized rate of return has averaged 15.0% over the last 5years.

 

Paper#45292 | Written in 18-Jul-2015

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