mgt 610 hm wk

mgt 610 hm wk - Security Market Value % Acton $125,000...

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1 MGMT 640 - Financial Management for Decision Makers 6-1 Phoenix Price Probability Return Expected Return $16 0.25 -20.00% -5.00% $20 0.3 0.00% 0.00% $24 0.25 20.00% 5.00% $28 0.2 40.00% 8.00% k~  = 8.00% P(k i ) (k i ) Phoenix Company common stock is currently selling for $20 per share. Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now. Assuming that Phoenix is not expected to pay any dividends during the coming year, determine the expected rate of return on Phoenix Stock.
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2 MGMT 640 - Financial Management for Decision Makers 6-2 Return on the Market 13.00% Capital Asset Pricing Model Risk Premium (RP) 7.00% kx = krf + (km-krf)bx Risk Free Rate (3 mo T-Bill) 6.00% Each Stocks Proportional Share of Portfolio:
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Unformatted text preview: Security Market Value % Acton $125,000 33.33% Boron $250,000 66.67% $375,000 100.00% Method 1: Individual Apply Portfolio Security Beta krf (Km krf) bx kx Proportion kx Acton 1.15 0.0600 + 0.1300 -0.0600 * 1.1500 = 14.05% 33.33% 4.68% Boron 1.40 0.0600 + 0.1300 -0.0600 * 1.4000 = 15.80% 66.67% 10.53% 15.22% OR Method 2: Prorated Security Beta bx Acton =1.15*.3333 0.3830 Boron =1.4*.6667 0.9334 1.3163 Portfolio krf (Km krf) bx kx 0.0600 + 0.1300 -0.0600 * 1.32 = 15.21% slight rounding diff between 2 methods Ken Howard has a two stock portfolio consisting of Acton Inc. and Boron Corp. Assume the following conditions exist. What does the SML predict is Kens required rate of return for the overall portfolio?...
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This note was uploaded on 10/25/2008 for the course MGT 640 / 610 taught by Professor I.e during the Spring '08 term at Union.

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mgt 610 hm wk - Security Market Value % Acton $125,000...

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