Company EI, company BGM, company UMR, and company WMG together licensed, produced and distributed 80 percent of the digital music that is sold in the US market. They formed a company MN to vend music to the online services which sold songs to the listeners/consumers. Company MN needed all of the useful services to sell songs for the similar price and subject to the same kind of restriction. Music digitization became cheaper but company MN decided to keep its price same. To find: The violation of the antitrust law by MN.

Question

Assume the risk-free rate is 8% and the expected rate of return on the market 16%. A share of stock is now selling for $75. It will pay a dividend of $5 per share at the end of the year. If the stock’s beta is 0.80, what must investors expect the stock to sell for at the end of the year? A stock has a beta of 1.05 and an expected return of 11.3%. A risk-less asset is currently earning 3.5%. What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets has a beta of 0.5, what are the portfolio weights? If a portfolio of the two assets has an expected return of 10.2%, what is its beta? If a portfolio of the two assets has a beta of 2.14, what are the portfolio weights? How do you interpret the weights for the two assets in this case?

Answer 1

Question

Chapter 27, Problem 4BCP

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Case summary:Company EI, company BGM, company UMR, and company WMG together licensed, produced and distributed 80 percent of the digital music that is sold in the US market. They formed a company MN to vend music to the online services which sold songs to the listeners/consumers. Company MN needed all of the useful services to sell songs for the similar price and subject to the same kind of restriction. Music digitization became cheaper but company MN decided to keep its price same.

To find: The violation of the antitrust law by MN.

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Assume the risk-free rate is 8% and the expected rate of return on the market 16%. A share of stock is now selling for $75. It will pay a dividend of $5 per share at the end of the year. If the stock’s beta is 0.80, what must investors expect the stock to sell for at the end of the year? A stock has a beta of 1.05 and an expected return of 11.3%. A risk-less asset is currently earning 3.5%. What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets has a beta of 0.5, what are the portfolio weights? If a portfolio of the two assets has an expected return of 10.2%, what is its beta? If a portfolio of the two assets has a beta of 2.14, what are the portfolio weights? How do you interpret the weights for the two assets in this case?

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