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CopyofF490c_Finance_Capstone_Module_04_Problems.xlsxProblem 1
| Rasmussen College - F490c - Module 04 Assignment | |
| Problem 1 | |
| 1. | Companies employ diversification as a risk management technique. Why is it important to diversity? Explain the importance of diversification and how does it affect risk and return? |
Type your answer here.
Problem 2
| Rasmussen College - F490c - Module 04 Assignment | |
| Problem 2 | |
| 2. | Your company is considering several securities. The rate of T-bills is 8.25%. The required return for the market is 11.5%. What is the required return on a security you are considering if the beta is 1.15? |
| Required return: |
Problem 3
| Rasmussen College - F490c - Module 04 Assignment | |||
| Problem 3 | |||
| 3. | Find the beta coefficient given the market data for the stock and the market porfolio. | ||
| Historical Rates of Return | |||
| Year | stock return | return on market | |
| 2009 | -5% | 10% | |
| 2010 | 4% | 8% | |
| 2011 | 7% | 12% | |
| 2012 | 10% | 20% | |
| 2013 | 12% | 15% | |
| Risk-free rate | 6% | ||
| beta is: |
Problem 4
| Rasmussen College - F490c - Module 04 Assignment | ||
| Problem 4 | ||
| 4. | Assuming the CAPM, what is the market's expected return with the following information? | |
| market return: | ||
| beta: | 2 | |
| company's expected return: | 18% | |
| T-bill yield: | 10% | |
Problem 5
| Rasmussen College - F490c - Module 04 Assignment | ||
| Problem 5 | ||
| 5. | Use any of the capital budgeting decision rules to determine whether or not to accept the following investment. Assume the cost of capital of 14%. Explain your reasoning. | |
| Investment | ||
| Year | Cash Flow | |
| 0 | $ (31,000) | |
| 1 | $ 10,000 | |
| 2 | $ 20,000 | |
| 3 | $ 10,000 | |
| 4 | $ 10,000 | |
| 5 | $ 5,000 |
Explanation:
