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Julian Ammons-BUS5440-Week4

# Julian Ammons-BUS5440-Week4 - Portfolio = 20.1 d Stock A =...

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Julian Ammons Chapter 6 6-2 r= r RF + (r M – r RF )b = 6% + (13% - 6%)0.7 = 10.9% 6-9 Stock Investme nt Beta W A \$400,000 1.5 10.00% B \$600,000 -0.5 15.00% C \$1,000,00 0 1.25 25.00% D \$2,000,00 0 0.75 50.00% \$4,000,00 0 0.7625 r p = 6% + 0.7625 (14% – 6%) = 12.10% 6-12 Year Stock A Stock B 2006 -18.00% -14.50% 2007 33.00% 21.80% 2008 15.00% 30.50% 2009 -0.50% -7.60% 2010 27.00% 26.30%

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a. Stock A = (-18) + (33) + (15) + (-.50) + (27) = 11.30% 5 Stock B = (-14.5) + (21.8) + (30.5) + (-7.6) + (26.3) = 11.30% 5 b. Realized Rate of Return 2006 = (0.5)(-18) + (0.5)(-14.5) = -16.25% 2007 = (0.5)(33) + (0.5)(21.8) = 27.4% 2008 = (0.5)(15) + (0.5)(30.5) = 22.75% 2009 = (0.5)(-0.5) + (0.5)(-7.6) = -4.05% 2010 = (0.5)(27) + (0.5)(26.3) = 26.65% Average Return = (-16.25) + (27.4) + (22.75) + (-4.05) + (26.65) = 11.30% c. Stock A = 20.8%
Stock B = 20.8%

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Unformatted text preview: Portfolio = 20.1% d. Stock A = 20.8 / 11.3 = 1.84 Stock B = 20.8 / 11.3 = 1.84 Portfolio = 20.1 / 11.3 = 1.78 e. I would prefer to hold the portfolio over the individual Stocks because the expected return is the same for the portfolio and the individual stocks, but the portfolio offers a lesser risk than the Stocks. 6-13 You have observed the following returns over time: Year Stock X Stock Y Market 2006 14.00% 13.00% 12.00% 2007 19.00% 7.00% 10.00% 2008-16.00%-5.00%-12.00% 2009 3.00% 1.00% 1.00% 2010 20.00% 11.00% 15.00% a. Stock X = 1.3471 Stock Y = 0.6508 b. Stock X = 12.7355% Stock Y = 9.254% c. Required Rate of Return = 12.04% d. UNDERVALUED Chapter 24 24-4 Expected Return = 16.2% Standard Deviation = 45.9%...
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