You are working on creating a portfolio that mimics a fully diversified market index. Assume that you have $1 million fund to invest. You plan to allocate $195,000 and $365,000 of your fund to invest in stock A and B, respectively. To achieve your goal, you need to add an additional risky stock C and a risk-free bond to your portfolio. How much would you invest in stock C and risk-free bond?
Q: (i) Construct a decision tree for the proposed investment project and calculate the expected net…
A:
Q: 2) Below are call and put option prices for Exxon, expiring on November 17, 2017. The prices are…
A: Call-put options are derivative products that gives the opportunity to buy or sell stock on…
Q: Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these…
A: When referring to investments that raise the overall outstanding aggregate invested amount under…
Q: you want to withdraw $100 from an account in year one. Also, you want to withdraw $200, $250 and $70…
A: Present value is the equivalent value today of the future money based on time value of money and…
Q: 3. How much, including taxes of 12%, would you pay for an item with a retail price of $194.95?
A: Retail price=$194.95Taxes=12%Required is to find out the included price.
Q: X Company must decide whether to continue using its current equipment or replace it with new, more…
A: IRR stands for Internal Rate of Return, and it is a financial metric used to evaluate the…
Q: Fujita, Incorporated, has no debt outstanding and a total market value of $422,400. Sarnings before…
A: Earnings Per Share or (EPS) is a type of financial metric which is used to show the amount of profit…
Q: Total assets of Pelican Paper and Timberland Forest are $200 million and $120 million BT 585 million…
A: Return on Asset (ROA) = Net Income / Total AssetsNet Income = Earnings After TaxTotal Assets =…
Q: A series of five constant-dollar (or real-dollar) payments (beginning with $5,000 at the end of the…
A: P = $5,000,g=7% or 0.07,r=12% or 0.12, andn=5 payments.
Q: A firm wants to sponsor a new engineering lab at a local university. This requires $4.0M to…
A: A firm wants to sponsor a new engineering lab at a local university. It will require $4,000,000 to…
Q: You have been asked to do a presentation to a group of young entrepreneurs on “Investing Surplus…
A: The objective of this question is to prepare a speech on the topic of 'Investing Surplus Cash' for a…
Q: Philly Pretzels Inc. operates fast food restaurants and is considering producing packaged products…
A: Net present value is a capital budgeting metric that is used to evaluate the profitability of the…
Q: A firm considers to invest in two zero-coupon bonds (A and B) in order to cover for a selection of…
A: Bonds refer to the financial instruments with which periodic interest payment is attached and a…
Q: XYZ Corp. will pay a $2 per share dividend in 2 months. Its stock price currently is $72 per share.…
A: A call option is a financial contract that gives the holder the right, but not the obligation, to…
Q: GreenStar offers its employees a 401(k) plan. The company matches employee contributions at 75% up…
A: Employee contribution typically refers to the amount of money or effort that an individual employee…
Q: Discuss in detail the difference between accounting income and cash flow
A: Accounting income and cash flow are two important financial metrics that provide different…
Q: Weight of B: Return of A: Return of B: Standard deviation of A: Standard deviation of B: Coefficient…
A: The objective of the question is to calculate the weight of B, return of A and B, standard deviation…
Q: between -9.87% and 23.87% between -47.68 % and 54.68 % between -24.60 % and 31.80 % between -26.74 %…
A:
Q: A firm is considering two alternatives that have no salvage value. At the end of 4 years, another B…
A: Net present value is the present value of inflows less present value of outflows.EUAW is effective…
Q: QUESTION 17 Suppose you purchase one share of the stock of Cereal Correlation Company at the…
A: Time-weighted return refers to the rate of return which is calculated by eliminating the…
Q: Abstract Corporation’s 2014 EBIT and EPS were $10 million and $1.80 respectively. In 2015, the…
A: Given the following data,in 2014EBIT of Abstract Corporation’s (Old EBIT) = $10 million or…
Q: A bank enters into a forward purchase TT covering an export bill for Swiss Francs 1,00,000 at *…
A: First the contract will be cancelled at TT selling rate :USD/ Rupee spot selling rate…
Q: i will 10 upvotes urgent What is the present worth of the total 20 payments, occurring at the end of…
A: The present value is the current value of the future cash flows discounted with the interest rate…
Q: A fixed-interest security pays coupons at a rate of 4% per annum annually in arrears and is redeemed…
A: The objective of the question is to calculate the discounted mean term (DMT) of a bond. The DMT is a…
Q: CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavoured liquor. Suppose…
A: The risk-free rate of return refers to the theoretical rate of return of an investment with zero…
Q: TB MC Qu. 09-10 Sharon Smith will receive... Sharon Smith will receive $1.23 million in 30 years.…
A: PV stands for Present Value. In financial terms, present value is the current worth of a sum of…
Q: a) What is Store B's weekly inventory holding cost if lead time is two weeks? b) What is Store B's…
A:
Q: Shopify, Inc common stock currently sells for $1,185.31 per share, and the standard deviation of…
A: Stock price = $1,185.31Strike price = $1,100Standard deviation = 68.35%Time to expire = 0.15…
Q: You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you…
A: The value of a firm, also known as its market value or market capitalization, is the total market…
Q: 1. Case 1: Nora made a total of P5,000 contributions for SSS, Philhealth, Pag-ibig, and union dues.…
A: Professional income refers to earnings generated by individuals who provide specialized services…
Q: In mid-2018, some analysts recommended that General Electric (GE) suspend its dividend payments to…
A: The company will not give any dividends for next two years.HenceYear 1 dividend (D1) = $0Year 2…
Q: effective annual yield (or bond annual yield)
A: The effective yield is the return on a bond that has its interest payments (or coupons) reinvested…
Q: The stock market data given by the following table. Telmex Mexico World Correlation Coefficients…
A: The CAPM equation requires following parameters:Required return is the cost of equityRisk-free rate…
Q: What is the modified IRR?
A: Modified IRR= (Future value of Positive cashflow /Present value of negative cashflow)^(1/n)-1Future…
Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…
A: The Sharpe ratio aids in assessing an investment's performance in comparison to a risk-free asset…
Q: A company has the following information related to its new project. Initial investment: $1.740,000,…
A: The objective of the question is to calculate the financial break-even point, which is the number of…
Q: it is incorrect, can you try again, using only formulas, no tables
A: In this problem, we are required to perform duration matching. Where we have to match the duration…
Q: A bond has a maturity of 3 years and a coupon of 4.24%. The price is 100.19. The six month Tbill…
A: Two year spot rate will be the discounted rate which can be found by using the following formulaIf…
Q: You are given the following information regarding the domestic government fixed-interest bond…
A: > Give :> Let the one year spot rate= r1> Two years spot rate = r2> Bond price of two…
Q: An investment of 100000 pesos yields 36238.49 pesos at the end of the 3rd year, 43774.27 at the end…
A: > Investment = 100000> 3rd year cash flow = 36238.49> 6th year cash flow = 43774.27>…
Q: Bad Company has a new 4-year project that will have annual sales of 8,400 units. The price per unit…
A: Operating cash flow is the amount which is earned by the investor from the project. It is the net…
Q: plomon Company is considering investing in two new vans that are expected to generate combined cash…
A: Net present value is the important capital budgeting method based on the time value of money and can…
Q: In a currency swap, using the information below, can you calculate the quarterly payments that…
A: In a currency swap, the quarterly payments are calculated by multiplying the notional amount by the…
Q: Suppose you have a stock market portfolio with a beta of .90 that is currently worth $783 million.…
A: An investor's collection of stocks, funds, and other market-traded instruments is known as their…
Q: CAPM As an equity analyst, you have developed the following return forecasts and risk estimates for…
A: The objective of the question is to calculate the required return for each mutual fund according to…
Q: The stock of Sharkey Enterprises typically provides an average rate of return of 12.4 percentThe…
A: Price of stock (P0)=D1/(r−g)D1= Next annual dividend is projected = 0.89g= Growth rate = 2.10%r =…
Q: You need a 25-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend…
A: A balloon payment refers to a large lump sum payment that is due at the end of a loan term. Unlike a…
Q: You are a consultant to a large manufacturing corporation that is considering a project with the…
A: r=rf+beta(rm−rf)rf=7%rm=15%beta=1.1=>7%+1.1(15%-7%).=>7%+8.8%=>15.8%
Q: You have just won the lottery and will receive $520,000 in one year. You will receive payments for…
A: Present Value (PV) is a financial concept used to determine the current worth of future cash flows,…
Q: V F11 Harley- { [ C F13
A: The objective of the question is to find out the number of years it will take for an initial…
You are working on creating a portfolio that mimics a fully diversified market index.
Assume that you have $1 million fund to invest. You plan to allocate $195,000 and $365,000
of your fund to invest in stock A and B, respectively. To achieve your goal, you need to add an
additional risky stock C and a risk-free bond to your portfolio. How much would you invest in
stock C and risk-free bond?
Step by step
Solved in 3 steps with 2 images
- You are working on creating a portfolio that mimics a fully diversified market index.Assume that you have $1 million fund to invest. You plan to allocate $195,000 and $365,000of your fund to invest in stock A and B, respectively. To achieve your goal, you need to add anadditional risky stock C and a risk-free bond to your portfolio. How much would you invest instock C and risk-free bond?You are working on creating a portfolio that mimics a fully diversified market index. Assume that you have $1 million fund to invest. You plan to allocate $195,000 and $365,000 of your fund to invest in stock A and B, respectively. To achieve your goal, you need to add an additional risky stock C and a risk-free bond to your portfolio. Assume that betas for stock A, B, and C are 0.80, 1.09, and 1.23, respectively. How much would you invest in stock C and risk-free bond?Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios: stocks, bonds, or commodities. Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment: Stocks Bonds Commodities Probability Return Probability Return Probability Return 20% 15% 0.15 20% 0.6 10% 0.2 0.2 12.5% 0.4 7.5% 0.2 0.25 0.2 0.4 3.8% 0.2 0.2 0% To maximize your expected return, you should choose O A. commodities. B. bonds. OC. stocks. OD. All of the portfolios have the same expected return
- Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 5.00%. What rate of return should investors expect (and require) on this fund? (Hint: first calculate the weights, then calculate the beta of the portfolio and then calculate the required return of the portfolio.) Show your work. Stock Amount Weights Beta A $1,075,000 ? 1.20 B 675,000 ? 0.50 C 750,000 ? 1.40 D 500,000 ? 0.75 $3,000,000After learning the course, you divide your portfolio into three equal parts (i.e., equal market value weights), with one part in Treasury bills, one part in a market index, and one part in a mutual fund with beta of 0.77. What is the beta of your overall portfolio?You want your portfolio beta to be 1.30. Currently, your portfolio consists of $100 invested in stock A with a beta of 1.4 and $300 in stock B with a beta of .6. You have another $400 to invest and want to divide it between an asset with a beta of 1.8 and a risk-free asset. How much should you invest in the risk-free asset?
- You want to create a portfolio equally as risky as the market, and you have $5M to invest. Given the information below, what is your investment in the risk-free asset? Asset Stock A Stock B Stock C Risk-free Asset $0.8M $0.7M $0.9M $1.1M Investment $1M $2M Beta 0.7 1.25 1.5You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its net are summarized below. Calculate the beta of the portfolio and use the capital asset pricing model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 18% and that the risk-free rate is 6%. Stock A, Investment = $188,000, Beta=1.50, Stock B, Investment = $282,000, Beta =0.50, Stock C, Investment = $470,000, Beta = 1.30 Beta of the portfolio ? Expected rat of return ? %You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock Investment Beta A $222,000 1.41 B 333,000 0.53 C 555,000 1.30 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 12 percent and that the risk-free rate is 7 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) Beta of the portfolio enter the beta rounded to 3 decimal places Expected rate of return enter percentages rounded to 2 decimal places %
- After learning the course, you divide your portfolio into three equal parts, with one part in Treasury bills, one part in a market index, and one part in a mutual fund with beta of 1.80. What is the beta of your overall portfolio?As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U}: Forecasted Return CAPM Beta Fund T 9.00% 1.20 Fund U 10.00% 0.80 a. If the risk-free rate is 3.9 percent and the expected market risk premium (£(RM) -RFR} is 6.1 percent, calculate the expected return for each mutual fund according to the CAPM. b. Using the estimated expected returns from part (a) along with your own return forecasts, demonstrate whether Fund T and Fund U are currently priced to fall directly on the security market line (SML), above the SML, or below the SML. c. According to your analysis, are Funds T and U overvalued, undervalued, or properly valued?You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Information about the possible investments is as follows: stock A ($144,000 worth of stock A and beta of 0.89), stock B ($136.000 worth of stock B and beta of 1.34), stock C ($X worth of stock C and beta of 1.49), and risk-free asset ($Y worth of risk-free asset). How much will you invest in risk-free asset? 1) $127.248 2) $92,752 3) $115,348 4) $136.000