Risks and Rates of Returns
Not what you're looking for?
8-7
Suppose you are the money manager of a 4 million investment fund. The fund consists of four stocks with the following investments and betas:
Stock Investment Beta
A 400,000 1.50
B 600,000 (0.50)
C 1 million 1.25
D 2 million 0.75
If the market's required rate of return is 14% and the risk free rate is 6%, what is the funds required rate of return?
8-10
Bradford Manufacturing has a beta of 1.45, while Farley Industries has a beta of 0.85. The required return on an index fund that holds the entire stock market is 12.0%. The risk free rate of interest is 5%. By now how much does Bradford's required return exceed Farleys required return?
8-12
r(RF) = risk free rate of return; r(M) = required rate of return on a portfolio
b(i)= beta coffecient of the ith stock
Required Rate of Return : suppose r(RF) = 9%, r(M) = 14% and b(i)= 1.3
a. What is r(i) , the required rate of return on Stock i?
b. Now suppose r(RF) 1 increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect r(M) and r(i)?
c. Now assume r(RF) remains at 9% but r(M)(1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect r(i)?
Purchase this Solution
Solution Summary
The solution explains some questions relating to risks and rates of returns
Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Lean your Process
This quiz will help you understand the basic concepts of Lean.