Q 5. Mr. Gill has inherited the following portfolio: Share Share price No. of shares Beta ABCplc DEFplc GHlplc £1.50 20,000 0.80 £2.20 10,000 1.20 £1.90 20,000 1.10 a. What is the beta on this portfolio? b. If the risk-free rate of return is 6.5 per cent and the risk premium on shares over Treasury bills has been 5 per cent what is the expected return on this portfolio over the next year?

Q 5. Mr. Gill has inherited the following portfolio: Share Share price No. of shares Beta ABCplc DEFplc GHlplc £1.50 20,000 0.80 £2.20 10,000 1.20 £1.90 20,000 1.10 a. What is the beta on this portfolio? b. If the risk-free rate of return is 6.5 per cent and the risk premium on shares over Treasury bills has been 5 per cent what is the expected return on this portfolio over the next year?

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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8 102. Consider a portfolio with 21% in shares of Pinkshoe Corp. and 79% in shares of No Balance Inc. Find the expected return of the portfolio if Pinkshoe's expected return is 22% and No Balance's expected return is 17%. 108.The shares of Catfish Corp.'s are currently selling for $47. The next dividend of $1.6 per share will be paid exactly 1 year from now. The expected price one year from today is $51. Find Catfish's expected return.
Q 19) Beangrinder Corp. has an expected rate of return on equity next year (ROE1) equal to 12% and a reinvestment rate next year (RIR1), equal to 50%. Beangrinder Corp.'s equity beta is equal to 1 and the company is expected to have an earnings per share next year (EPS1), equal to $3. The long-run risk-free rate is equal to 1% while the stock market risk premium is forecast to equal 7%. What is Beangrinder Corp.'s intrinsic equity value per share equal to: Options - $100 $25 $50 $75
am. 142.
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QUESTION 4 You are considering a Stock B that pays a dividend of RM1.5. The beta coefficient of B is 1.3. The risk free return is 7%, while the market average return is 13%. a. What is the required return for Stock B? b. If Stock B is selling for RM10 a share, is it a good buy if you expect earnings and dividends to grow at 6%?
13. Assume you own the following portfolio: Stock A B C D Price #shares beta 140 20,000 1.2 600 8,000 2.0 50 30,000 0.8 120 30,000 1.4 It is 2/15 and you want to hedge till 7/31. You have the following contracts on the S&P500 index available to you. The correlation between your portfolio and the E-mini S&P500 index is 0.85 Maturity March June September December futures value 3120 3140 3150 3180 a. Which is the appropriate maturity of the contract? b. Should you go long or short on the futures contract? c. What are the optimal number of contracts? d. How effective can you expect your hedge to be? Answer: a. Since contract has to expire after the hedge date the appropriate contract is September b. I have a long position and the correlation is positive so I would take a short position in the futures contract c. Number of futures contract is given by Ny = () ) Stock Price #shares beta MV=P*Q ABCD 140 20,000 1.2 2,800,000 0.22 600 8,000 2.0 4,800,000 0.37 50 30,000 0.8 1,500,000 0.12 120…
#37
D3)
Estimated rate of return for Stock shareholders A B Estimated price in T1 4 4 Estimated dividend in T1 0,2 12% 15% 0,5 Calculate, for both stocks, the equilibrium price in TO. With a market rate of return of 6% and a risk free rate of 1,5%, calculate the Beta of the two stocks. Which percentage of stock A and B should you buy in your portfolio so as to generate a rate of return of 13,25%? What would be the beta of this portfolio?
5 Assume the historical volatility of a stock on the S&P 500 is 50% and the correlation between the returns of stock is 30% A. What is the average variance of stocks on the S&P? B. What is the average covariance of the stocks? C. Consider a portfolio of S&P stocks. What is the estimated volatility of the portfolio when there 10 stocks in the portfolio? What about 20 stocks in the portfolio?
5.2 (q2) A share has an expected return of 20.84%. The risk-free rate of return is 3.5% and the market risk premium is 10.2%. What is the beta of the share? a. 16.28% b. 18.26% c. 13.90% d. 13.88%

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