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Problem 6-1: Portfolio Beta
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(Chapter 6)
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Your investment club has 3 stocks in its portfolio, as follows:
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Amount
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Invested
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Beta
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20,000
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0.6
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40,000
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1.6
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40,000
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1.2
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What is the portfolio's beta?
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Problem 6-2 Rate of return
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(Chapter 6)
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BB Corporation's stock has a beta of 1.2. The risk-free rate is 5% and the
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expected return on the market is 13%. What is the required rate of return
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on BB Corporation's stock?
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Problem 6-3 CAPM
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(Chapter 6)
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Suppose the risk-free rate is 4% and the market risk premium is 8%.
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What is the required rate of return on (1) the market, (2) a stock with a beta
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of .8, and (3) a stock with a beta of 1.8?
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Problem 6-4 Calculating beta
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(Chapter 6)
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Given the following:
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Rate of return on Company Z
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16%
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Market rate of return
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12%
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Risk free rate
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4%
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1. Calculate Company Z's beta
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2. If Company Z's beta is 2.2, what would be the new required rate of return
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Problem 6-5 Portfolio rate of return
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(Chapter 6)
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Suppose you manage a portfolio that consists of the following stocks:
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Stock
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Investment
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Beta
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A
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500,000
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0.8
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B
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2,250,000
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1.4
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C
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1,750,000
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-0.7
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D
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1,500,000
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1.3
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If the market's required rate of return is 12% and the risk-free rate is 3%, what
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is the fund's required rate of return?
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Problem 6-6 Standard deviation
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(Chapter 6)
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Given the following information, calculate the expected return for the portfolio and the standard deviation. SHOW your work.
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DATA
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Probability
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Returns
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0.40
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5%
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0.30
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7%
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0.20
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12%
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0.10
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20%
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Problem 6-7 Holding period gain
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(Chapter 6)
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Suppose you purchased 40 shares of XYZ stock for SAR 350.00 on February 1.
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You sell the 40 shares of stock on October 1 of the same year for 672.40.
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No dividends were paid during the year.
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1. Calculate the holding period gain
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2. Calculate the holding period return
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