Problem 210 points Show all your The analysts at JP MORGAN Compiled information
ID: 374823 • Letter: P
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Problem 210 points Show all your The analysts at JP MORGAN Compiled information securities. on the following 12.5% 18.2 21.84 18.0% 21.0 10.0 1.5 Facebook (FB) Best Buy (8BY) Chipotle Mexican Grill CMG) Pfizer (PF) 3 M Co (MMM) $100 million 120 million1.2 1.8 40 million 9.0 8.0 80 million 1.5 60 million 1.611.36- 14.0 You are a manager of a private equity fund who has decided to construct a portfolio consisting of all the securities listed 1. Compute the return on the portfolio. 2. Compute the beta of the portfolio. 5 points 5 points Problem 3 5 points Amana, issued a 12 percent coupon bond with 10 years to maturity. What is the yield to maturity of this bond if it is sold at 97.25% of par? This problemshould be done using the formula) Problem 4 5 points The common stock of Kyocera currently sells for $88.50 and its current (Do) dividend is $1.10. Determine the implied growth rate for Kyocera assuming that an investor's required rate of return is 14% and that earnings and dividends are expected to grow at a constant rate.Explanation / Answer
Problem 2
1.
Total investment =100+120+40+80+60 = 400
Weightage of FB, w1 =100/400 = 0.25
Weightage of BBY, w2 =120/400 = 0.30
Weightage of CMG, w3 = 40/400 = 0.10
Weightage of PF, w4 = 80/400 = 0.20
Weightage of MMM, w5 = 60/400 = 0.15
Expected return on the portfolio = wi*Ri (where Ri is expected return) = 0.25*0.18 + 0.30*0.21 + 0.10*0.10 + 0.20*0.08 + 0.15*0.14 = 0.155 or 15.5%
Expected return ($) = 400*15.5% = 62
2.
Beta of the portfolio = wi*i = 0.25*1.5+0.30*1.2+0.10*1.8+0.20*1.5+0.15*1.6 = 1.455
Problem 3
Annual interest, AI = 12
Years remaining to maturity, N = 10
Market price = 97.25
Face Value, or Redemption Value, RV = 100
Yield To Maturity (YTM) = (AI + (RV - MP) / N) / ((RV + MP) / 2) = (12+(100-97.25)/10)/((100+97.25)/2) = 12.45 %
Problem 4
Required rate of return or cost of equity = (dividend/stock price)*(1+growth rate) + growth rate
14% = (1.1/88.5)*(1+g) + g , where g is implied growth rate
Implied growth rate, g = 12.6 %
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