8-21capital of $500 million invested in five stocks:StockInvestmentStock's Beta CoefficientA$160 million0.5В120 million1.280 million1.8D80 million1.060 million1.6Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-erate is 6%, and you believe the following probability distribution for future market retumsis realistic:TTProbabilityMarket Return0.1- 28%0.20.4120.2300.150What is the equation for the security market line (SML)? (Hint: First, determine theexpected market return.)Calculate Kish's required rate of return.c. Suppose Rick Kish, the president, receives a proposal from a company seeking newcapital. The amount needed to take a position in the stock is $50 million, it has arexpected return of 15%, and its estimated beta is 1.5. Should Kish invest in the newcompany? At what expected rate of return should Kish be indifferent to purchasangthe stock?а.b.

a) Equation of security market line is: Required return = rF + B(rM - rF)

Answered: Inves $160 120

Business

Finance

Inves $160 120

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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