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A hedge fund manager is seeking a $40 million investment into stocks of three companies (TD, POT and RIM) and in the T-bills. This "average" portfolio should have a beta of 1.3.
(a) If she invests $5 million in TD with a Beta of 0.6 and $8 million in POT with a Beta of 0.9 and if RIM has a Beta of 1.7, how much will you invest in RIM and in the T-Bills?
(b) Assume that the stocks of the three companies are on the Security Market Line. If the prevailing T-bill rate is 3% and the average market risk premium is 4%, what is the rate of return on each stock?
(c) Are the following stocks fairly, under- or over-priced?
Stock Price Next Div g Beta
MFC $21.0 $0.6 2% 1.3
SLF $29.0 $1.0 0% 0.9
CSIQ $6.50 $0.3 8% 2.0

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A hedge fund manager is seeking a $40 million investment into stocks of three companies (TD, POT and RIM) and in the T-bills. This "average" portfolio should have a beta of 1.3.
(a) If she invests $5 million in TD with a Beta of 0.6 and $8 million in POT with a Beta of 0.9 and if RIM has a Beta of 1.7, how much will you invest in RIM and in the T-Bills?
(b) Assume that the stocks of the three companies are on the Security Market Line. If the prevailing T-bill rate is 3% and the average market risk premium is 4%, what is the rate of return on each stock?
(c) Are the following stocks fairly, under- or over-priced? ...

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