BUS_320_Chapter_8_Practice_Problems

BUS_320_Chapter_8_Practice_Problems - = 12%). b) Calculate...

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BUS 320 Chapter 8 Assignment 1) An individual has $28,000 invested in a stock with a beta of 0.8 and another $52,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta? 2) Assume that the risk-free rate is 4% and the expected return on the market is 11%. What is the required rate of return on a stock with a beta of 0.8? 3) Assume that the risk-free rate is 6% and the market risk premium is 7%. What is the expected return for the overall stock market? What is the required rate of return on a stock with a beta of 1.2? 4) Stocks X and Y have the following probability distributions of expected future returns: Probability X Y____ 0.1 (10%) (35%) 0.2 2 0 0.4 12 20 0.2 20 25 0.1 38 45 a) Calculate the expected rate of return for Stock Y (rate of return of Stock X
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Unformatted text preview: = 12%). b) Calculate the standard deviation of expected returns for Stock Y (standard deviation of expected returns for Stock Y = 20.35%). Now calculate the coefficient of variation for Stock Y. Is it possible that most investors might regard Stock Y as being less risky than Stock X? Explain. 5) Suppose you are the money manager of a $5 million investment fund. The fund consists of 4 stocks with the following investments and betas: Stock Investment Beta__ A $600,000 1.00 B $800,000 0.80 C $1,400,000 1.10 D $2,200,000 0.75 If the market’s required rate of return is 12% and the risk-free rate is 5%, what is the fund’s required rate of return?...
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This note was uploaded on 01/11/2011 for the course BUS 320 taught by Professor Sloan during the Winter '08 term at N.C. State.

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