three (3) years are shown in Table 1 below. TABLE 1 Holistic Company Ltd. Healthy Treats BETA 1 2 STOCK PRICE STOCK PRICE Dividend Year Beginning End Dividend Beginning End Paid of Year of Paid of Year of Year Year 2019 $30 $35 $3.00 $20 $25 $0.80 2020 $35 $40 $1.50 $25 $38 $1.10 2021 $40 $45 $2.00 $38 $24 $0.50
three (3) years are shown in Table 1 below. TABLE 1 Holistic Company Ltd. Healthy Treats BETA 1 2 STOCK PRICE STOCK PRICE Dividend Year Beginning End Dividend Beginning End Paid of Year of Paid of Year of Year Year 2019 $30 $35 $3.00 $20 $25 $0.80 2020 $35 $40 $1.50 $25 $38 $1.10 2021 $40 $45 $2.00 $38 $24 $0.50
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
Related questions
Question
Question 1
e) As a risk averse investor Lawrence will only invest in the portfolio if it has a coefficient of variation that is below 0.75. Should Lawrence invest in the portfolio, please provide
reason(s) to support your response?
f) Assume in 2020 the estimated rate of return of the T&T Stock Exchange Composite Index
for the upcoming year was 8%, and the estimated return on a 1-year treasury note for the
upcoming year was 2%. Using the beta of each security shown in Table 1 above and the market expected returns calculate an expected rate of return for each security
Transcribed Image Text:Your friend, Lawrence a risk averse investor, is considering creating a portfolio of two (2)
company stocks, using monies he inherited when his uncle died. The first company, Holistic
Company Ltd., is a pharmaceutical company that produces multivitamins and supplements using
only organic ingredients. The second company, Healthy Treats, is a manufacturer of healthy
snacks using only organic ingredients. Lawrence has suggested that three-fifths () of his
inheritance be invested in Healthy Treats while the rest should be invested in Holistic Company
Ltd. The beta of the two (2) companies' stocks, as well as the price and dividend data for the last
three (3) years are shown in Table 1 below.
Holistic Company Ltd.
TABLE 1
Healthy Treats
BETA
2
STOCK PRICE
Year Beginning End Dividend
STOCK PRICE Dividend
Beginning End Paid
of Year of
Paid
of Year of
Year
Year
2019
$30
$35
$3.00
$20
$25
$0.80
2020
$35
$40
$1.50
$25
$38
$1.10
2021
$40
$45
$2.00
$38
$24
$0.50
It is assumed that each year's returns for both companies are equally probable. To ensure you
make a proper choice you need to answer the following questions.
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