The investment funds for your company includes the following: Stock $ Amount Invested Beta for Each Stock A $ 600,000 .8 B $ 1,800,000 1.4 C $ 2,400,000 1.7 D $ 700,000 -.6 E $ 3,000,000 1.1 You need to calculate the required rate of return for the investment. The market’s required return for Year 2020 is 12% and the risk free rate is 3% Show your work on the following: Calculate the average beta for the portfolio. Calculate the required rate of return for the entire portfolio. The CFO of your company is anticipating that the stock market will be decreasing in the near future. Please give a recommendation on which stock the company should sell and which stock the company should buy. The CFO also wants you to explain your answer.
The investment funds for your company includes the following: Stock $ Amount Invested Beta for Each Stock A $ 600,000 .8 B $ 1,800,000 1.4 C $ 2,400,000 1.7 D $ 700,000 -.6 E $ 3,000,000 1.1 You need to calculate the required rate of return for the investment. The market’s required return for Year 2020 is 12% and the risk free rate is 3% Show your work on the following: Calculate the average beta for the portfolio. Calculate the required rate of return for the entire portfolio. The CFO of your company is anticipating that the stock market will be decreasing in the near future. Please give a recommendation on which stock the company should sell and which stock the company should buy. The CFO also wants you to explain your answer.
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter12: Investing In Stocks And Bonds
Section: Chapter Questions
Problem 1FPE: What makes for a good investment? Use the approximate yield formula or a financial calculator to...
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Question
The investment funds for your company includes the following:
|
Stock |
$ Amount Invested |
Beta for Each Stock |
|
A |
$ 600,000 |
.8 |
|
B |
$ 1,800,000 |
1.4 |
|
C |
$ 2,400,000 |
1.7 |
|
D |
$ 700,000 |
-.6 |
|
E |
$ 3,000,000 |
1.1 |
You need to calculate the required rate of
The market’s required return for Year 2020 is 12% and the risk free rate is 3%
Show your work on the following:
- Calculate the average beta for the portfolio.
- Calculate the required rate of return for the entire portfolio.
- The CFO of your company is anticipating that the stock market will be decreasing in the near future. Please give a recommendation on which stock the company should sell and which stock the company should buy. The CFO also wants you to explain your answer.
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