HELP ME! PLEASE! 8-5) A stock has a required return of 12%; the risk-free rate i
ID: 2649349 • Letter: H
Question
HELP ME! PLEASE!
8-5) A stock has a required return of 12%; the risk-free rate is 5%; and the market risk premium is 3%.
a. What is the stock's beta? Round your answer to two decimal places.
2.33 (correct)
b. New stock's required rate of return will be %. Round your answer to two decimal places.
8-7) Suppose you are the money manager of a $4.54 million investment fund. The fund consists of 4 stocks with the following investments and betas:
If the market's required rate of return is 10% and the risk-free rate is 4%, what is the fund's required rate of return?
1B) Potter Industries has a bond issue outstanding with an annual coupon of 6% and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 7%, what is the value of the bond? Round your answer to the nearest cent. Do not round intermediate calculations.
$
Quantitative Problem: Potter Industries has a bond issue outstanding with a 6% coupon rate with semiannual payments of $30, and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 7%, what is the value of the bond? Round your answer to the nearest cent. Do not round intermediate calculations.
$
Explanation / Answer
Answer: Calculation of the Stock Beta:
E(Rp)=Rf+beta(E(Rm-Rf)
12%=5%+beta*3%
7%=beta*3%
7/3=Beta
Beta=2.33
Answer:8-7)
Portfolio beta = [300,000/4,540,000](1.50) + [460,000/4,540,000] (-0.50) + [1,180,000/4,540,000] (1.25) + [2,600,000/4,540,000] (0.75)
bp = (0.0661)(1.5) + (0.10132)(-0.50) + (0.2599)(1.25) + (0.5726872)(0.75)
= 0.09915
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