stock Investment Stock's Beta Coefficient
a $160 million 0.5
b 120 million 2.0
c 80 million 4.0
d 80 million 1.0
e 60 million 3.0
The beta coefficient for a fund like Kish Investment can be found as a weghted average of the fund's investments. The current risk-free rate is 6%,whereas market returns have the following estimated probability distribution for the next period.
Probability Market Return
a) What is the estimated equation of the Security Market Line (SML).
b) Draw a properly labeled graph of the line.
c)Compute the fund's required rate of return for the next period.
d) Suppose Bridget Nelson, the president, receives a proposal for a new stock. The investment needed to take a position in the stock is $50 million, it will have an expected return of 15%,and its estimated beta coeficient is 2.0.Should the new stock be purchased?At what expected rate of return should the fund be indifferent to purchasing the stock?