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)?

Carib and Heinekin have reported the returns on small company stocks and U.S. Treasury bills for the period 1986 - 1991 as follows
Year small company stocks u.s treasury bills
1986 6.85% 6.1

You are considering a security with the following possible rates of return:
Probability Return (%)
0.30 9.5
0.15 12.0
0.25 15.0
0.30 16.0
Calculate the expected rate of return and the standard deviation of the returns.
Probability Return (%)
0.15 6

7 As bond market interest rates increase, the value (i.e., price) of a fixed coupon interest rate bond (i.e., a typical corporate bond)
a. does not change
b. increases
c. decreases
d. insufficient information to answer this question
e. None of the above or insufficient information
8 In an efficient capital market
a

Firms operating in some countries are exposed to political risks. What are the primary types of political risks? Explain each of them and provide some examples.

See attached file for full problem description.
Managerial Finance
Week 4 Dropbox Chapter 6
Stock X a) b) Stock Y a) b)
Probability Return Rate/Return Stand Dev Probability Return Rate/Return Stand Dev
0.1 -0.1 0.2 0.02 0.4
0.2 10 0.2 7 1.4
0.4 15 0.3

The theory of interest rate parity states that the annual percentage differential in the forward market for a currency quated in terms of another currency is equal to the approximate difference in _______ prevailing in the two countries
a. interest rates
b. trade deficit rates
c. GNP growth rates

Please help with the following problem.
Risk and Return. True or False? Explain or qualify as necessary.
a. Investors demand higher expected rates of return on stocks with more variable rates of return.
b. The capital asset pricing model predicts that a security with a beta of zero will provide an expected return of ze

Explain why systematic risk is more closely linked to returns than is unsystematic risk. Which differences are most important to keep in mind when working with each type of risk? How does diversification reduce volatility?