Problem set 5 - BNFN 416 Investment Management Problem set...

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BNFN 416 Investment Management Problem set 5 (Reference chapter 7) Q1) What is the beta of a portfolio with E(r P )= 20 %, r f = 5% and E(r M )=15%? Q2) The market price of security is $40. Its expected rate of return is 13%. The risk free rate is 7%, and the market risk premium is 8%. What will the market price of the security be if its beta doubles? Assume the stock is expected to pay a constant dividend in perpetuity. Q3) A share of stock is now selling for $100. It will pay a dividend of 9% per share at the end of the year. Its beta is 1.0. a) What do investors expect the stock to sell for at the end of the year? b) If stock has an expected return of 6%. What is its beta? Note: Assume that the risk free rate is 8% and the expected rate of return on the market is 18%. Q4) Two investment advisors are comparing performance. One averaged a 19% return and the other a 16% return. However, the beta of the first one was 1.5 whilst the second one was 1.0. a)
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This note was uploaded on 10/28/2009 for the course MBA MBA608 taught by Professor Martin during the Spring '09 term at Beirut Arab University.

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Problem set 5 - BNFN 416 Investment Management Problem set...

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