Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 8, Problem 8.4WUE
Summary Introduction

To discuss:

Expected return of portfolio.

Introduction:

Expected portfolio return: In financial context, expected portfolio return is seen as percentage that represents the expected profit on a portfolio of investments.

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The investment funds for your company includes the following: Stock $ Amount Invested Beta for Each Stock A $    600,000     .8 B $ 1,800,000     1.4 C $ 2,400,000     1.7 D $    700,000      -.6 E $ 3,000,000      1.1 You need to calculate the required rate of return for the investment. The market’s required return for Year 2020 is 12% and the risk free rate is 3% Show your work on the following: Calculate the average beta for the portfolio. Calculate the required rate of return for the entire portfolio. The CFO of your company is anticipating that the stock market will be decreasing in the near future. Please give a recommendation on which stock the company should sell and which stock the company should buy.  The CFO also wants you to explain your answer.
Portfolio Analysis (Er) (30 points) 3. You have worked with your client and put together an investment portfolio based on the client's preferences for risk. The portfolio will be divided among several asset classes defined below. Asset Class Allocation Expected Return Standard Deviation of Returns 10 Year T-Bonds 37% 4.13% 0.00% International Bonds (Private Corporate) 12% 6.32% 34.23% Rusell 2000 ETF 41% 6.70% 12.32% FTSE 100 ETF 10% 32.10% 21.30% 100% a. What is the expected return for this portfolio? Provide the result as x.xx%. b. What is the expected return for the portfolio if you decide not to invest in treasury bonds? Provide the result as x.xx%. c. What asset class would you eliminate to maximize expected return? Explain why.
What is the expected annual return of this portfolio?

Chapter 8 Solutions

Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)

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