Suppose you manage a 4 million fund

Problem

Suppose you manage a $4.175 million fund that consists of four stocks with the following investments:

Stock

Investment

Beta

A

$420,000

1.50

B

475,000

-0.50

C

1,380,000

1.25

D

1,900,000

0.75

If the market's required rate of return is 11% and the risk-free rate is 7%, what is the fund's required rate of return? Round your answer to two decimal places.

%

Problem

Suppose rRF = 4%, rM = 10%, and rA = 14%.

a. Calculate Stock A's beta. Round your answer to two decimal places.

b. If Stock A's beta were 1.3, then what would be A's new required rate of return? Round your answer to two decimal places. %

Problem

Suppose rRF = 4%, rM = 10%, and rA = 14%.

a. Calculate Stock A's beta. Round your answer to two decimal places.

b. If Stock A's beta were 1.3, then what would be A's new required rate of return? Round your answer to two decimal places. %

Problem 6-13

You have observed the following returns over time:

Year

Stock X

Stock Y

Market

2006

15%

11%

13%

2007

21

7

12

2008

-15

-6

-14

2009

5

2

3

2010

24

8

15

Assume that the risk-free rate is 3% and the market risk premium is 14%

a. What is the beta of Stock X? Round your answer to two decimal places. What is the beta of Stock Y? Round your answer to two decimal places.

b. What is the required rate of return on Stock X? Round your answer to two decimal places. % What is the required rate of return on Stock Y? Round your answer to two decimal places.

c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Round your answer to two decimal places. %

d. If Stock X's expected return is 20%, is Stock X under- or overvalued? I. Stock X is overvalued, because its expected return exceeds its required rate of return. II. Stock X is overvalued, because its expected return its is below required rate of return. III. Stock Y is undervalued, because its expected return exceeds its required rate of return. IV. Stock X is undervalued, because its expected return is below its required rate of return. V. Stock Y is undervalued, because its expected return is below its required rate of return.

Problem 6-1

An individual has $30,000 invested in a stock with a beta of 0.7 and another $45,000 invested in a stock with a beta of 1.1. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two decimal places.

Problem 6-3

Assume that the risk-free rate is 4.5% and that the market risk premium is 5%.

What is the required rate of return on a stock with a beta of 0.8? Round your answer to two decimal places. %

What is the required rate of return on a stock with a beta of 0.6? Round your answer to two decimal places. %