Financial Management: Stocks, Inventory Period, and Portfolio Beta

1.I have a $1,000 portfolio which is invested in stocks A and B plus a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.3 and stock B has a beta of .7, how much needs to be invested in stock B if i want a portfolio beta of .90?

a. $0
b. $268
c. $482
d. $543
e. $600

2. I am comparing stock A to stock B. In a booming economy, stock A has a 60% probability of the state of economy and a 9% rate of return if state occurs, in a recession 40% probability of state of economy, with a 4% rate of return if state occurs. Stock B has a 15% rate of return in the 60% booming economy, and a -6% rate of return in the 40% recession. Based on the given below answers, which is best?

a. Stock A, because it has an expected return of 7% and appears to be more risky.

b. Stock A, because it has a higher expected return and appears to be less risky than stock B.

c. Stock A, because it has a slightly lower expected return but appears to be significantly less risky than stock B

d. Stock B, because it has a higher expected return and appears to be just slightly more risky than stock A.

e. Stock B, because it has a higher expected return and appears to be less risky than stock A.

3. A company common stock ($1 par value)is $120,000, retained earnings of $32,000, resulting in total shareholders equity of $152,000. Projected income is $150,000 and the dividend per share to be paid immediately is 40%. what will the ending retained earnings account be?

a. $90,000
b. $92,000
c. $122,000
d. $210,000
e. $242,000

4.which of the following will tend to decrease the inventory period?

I. discontinuing all slow selling merchandise
II. sell obsolete inventory below cost just to bet rid of it
III. buy raw materials only as they are needed in the manufacturing process
IV. produce goods on demand versus for inventory

a. I and III only
b. II and IV only
c. II, III and IV only
d. I, II and III only
e. I, II, III and IV

(please provide answers in excel format and please do not just pick and answer, I need explanation to grasp the concept, thank you)

Solution Summary

This solution shows step-by-step calculations in an Excel file which determines which stock has a higher expected return and the retained earnings.

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