I don't know where to start with each calculation with the information given for each investment. If I know where to put the numbers, I can figure it out, with step by step directions. I need these done correctly so I can work the rest of the problems: which is weighted average expected rate, expected standard deviation, and correlation of investments.

Sam and Sally Vallarta have a portfolio consisting of the following investments:
1. $20,000 of Speightstown Corp. common stock, consisting of 800 shares with a current market price of $25 per share. The Beta of Speightstown Corp. stock is 1.20, and the stock pays no dividends.
2. $15,000 of Lucca Corp. common stock, consisting of 150 shares with a current market price of $100 per share. The beta of Lucca stock is .60 and it paid annual dividends of $5.75 per share during the past year. Dividends are expected to grow at a rate of 4% per year.
3. 30 Frederickstad Corp. bonds (face value of $1,000 each) maturing in 2020. These bonds have a coupon of 5.2% and pay interest annually. They are rated AA by Standard and Poors.
Assume that these are all owned in joint tenancy, and not held in IRAs or other tax-deferred vehicles (like 401k's).
Instructions:
1. Using the Capital Asset Pricing Model (CAPM), determine the expected rate of return next year for investment #1. Assume a market premium of 7%.
2. Using the dividend growth model, determine the value of investment #2 if the Vallartas' required rate of return for this investment is 4.5%.
3. Determine the value of investment #3 if the Vallartas' required return for this investment is 5%.

Solution Preview

Sam and Sally Vallarta have a portfolio consisting of the following investments:
1. $20,000 of Speightstown Corp. common stock, consisting of 800 shares with a current market price of $25 per share. The Beta of Speightstown Corp. stock is 1.20, and the stock pays no dividends.
2. $15,000 of Lucca Corp. common stock, consisting of 150 shares with a current market price of $100 per share. The beta of Lucca stock is .60 and it paid annual dividends of $5.75 per share during the past year. Dividends are expected to grow at a rate of 4% per year.
3. 30 Frederickstad Corp. bonds ...

Solution Summary

The solution explains how to calculate the rate of return using CAPM and dividend discount model and use that to find the value of investment

I need your help with this question its on Risk and Return and it is a True or False and I need your help explaining or qualifying the answer.
a. The expected rate of return on an investment with a beta of 2 is twice as high as the expected rate of return of the market portfolio.
If there are abreviations or formulas used

The expected return for an investment is 30%. If we know the following information about the return distribution of the investment, what return will the investment produce if the economic climate is average?
Climate Return Probability
Poor 20% 0.30
Average

An investment that costs $48,000 provided annual cash flows of $9,000 per year for six years. The desired rate of return is 10%. The actual return from the investment was:
a) less than the desired rate of return, b) equal to the desire ROI c) greater than the desired ROI, d) or it cannot be determined.

P3-42. Determine which of the following three investments offers you the highest rate of return on your $1,000 investment over the next five years.
Investment 1: $2,000 lump sum to be received in five years
Investment 2: $300 at the end of each of the next five years
Investment 3: $250 at the beginning of each of the next f

Compare and contrast the following methods of determining risk and return for a stand alone investment asset e.g. a corporate equity or a corporate bond
Measures of historical rates of return
Expected rates of return
Measuring the risk of expected rates of return

The following information is available about an investment opportunity. Investment will occur at time 0 and sales will commence at time 1.
Initial cost $10 million
Unit sales 100,000
Selling price per unit, this year $50
Variable cost per unit, this year $20
L

You buy a 10% coupon bond 1 year ago for $1,060 it has a 1,000 face value and this bond sells for $1,085 today.
1. what is your total dollar return on this investment over the past year?
2. what is the total nominal rate of return over the past year?
3. if the inflation rate last year was 9%, what is your total rea

Consider the following information and then calculate the required rate of return for the Scientific Investment Fund, which holds 4 stocks. The market's required rate of return is 15.0%, the risk-free rate is 7.0%, and the Fund's assets are as follows:
Stock
Stock Investment Beta
A

You must choose between two passive investments.
Investment A requires an initial investment of $50,000 but will return $71,000 in three years.
Investment B requires an initial investment of $45,000 but will return $60,000 in two years.
You choose a discount rate of 10% to make your decision.
What is the present valu