CASE 12 MID-ATLANTIC SPECIALTY, INC: Financial Risk
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Week3CaseAssignment-Case12-Mid-Atlantic-PENDINGHW.xlsxModel
| CASE 12 MID-ATLANTIC SPECIALTY, INC: Financial Risk | 12/1/17 | |||||
| Copyright 2018 Foundation of the American College of Healthcare Executives. Not for sale. | ||||||
| Model without Questions, Student Version | ||||||
| Case 12 deals with basic financial risk concepts of a medical group practice facing alternative | ||||||
| investment opportunities. | ||||||
| The student version of the model is a format guide only because the objective is for students to attempt | ||||||
| basic calculations themselves. The key to student success in this case lies in correct calculations and | ||||||
| interpretation of the data. | ||||||
| Estimated one-year return distributions: | ||||||
| State of the | 1-Year | Healthcare | Inverse | Biotech | S&P | |
| Economy | Probability | T-Bill | Fund | ETF | Fund | 500 |
| Poor | 0.1 | 7% | -8% | 18% | -19% | -15% |
| Below average | 0.2 | 7% | 2% | 23% | 0% | 0% |
| Average | 0.4 | 7% | 14% | 7% | 13% | 15% |
| Above average | 0.2 | 7% | 25% | -3% | 31% | 30% |
| Excellent | 0.1 | 7% | 33% | 2% | 50% | 45% |
| Historical return distributions: | ||||||
| 1-Year | Healthcare | Inverse | Biotech | S&P | ||
| T-Bill | Fund | ETF | Fund | 500 | ||
| Year 1 | 7% | -8% | 18% | -19% | -15% | |
| Year 2 | 7% | 2% | 23% | 0% | 0% | |
| Year 3 | 7% | 14% | 7% | 13% | 15% | |
| Year 4 | 7% | 25% | -3% | 31% | 30% | |
| Year 5 | 7% | 33% | 2% | 50% | 45% | |
| Stand-alone return and risk: | ||||||
| 1-Year | Healthcare | Inverse | Biotech | S&P | ||
| T-Bill | Fund | ETF | Fund | 500 | ||
| Expected return [E(R)] | ||||||
| Variance (Var) | ||||||
| Standard deviation (SD) | ||||||
| Coefficient of variation (CV) | ||||||
| Portfolio return and risk: | ||||||
| E(R) of | E(R) of | |||||
| Portfolio | Portfolio | |||||
| State of the | Healthcare Fund / | Healthcare Fund / | ||||
| Economy | Inverse ETF | Biotech Fund | ||||
| Poor | ||||||
| Below average | ||||||
| Average | ||||||
| Above average | ||||||
| Excellent | ||||||
| Portfolio | Portfolio | |||||
| Healthcare Fund / | Healthcare Fund / | |||||
| Inverse ETF | Biotech Fund | |||||
| Expected return [E(R)] | ||||||
| Variance (Var) | ||||||
| Standard deviation (SD) | ||||||
| Coefficient of variation (CV) | ||||||
| Correlation coefficient | ||||||
| Market characteristic lines: | ||||||
| S&P | 1-Year | Healthcare | Inverse | Biotech | ||
| 500 | T-Bill | Fund | ETF | Fund | ||
| Intercept | ||||||
| Market beta | ||||||
| Data point | ||||||
| Data point | ||||||
| Data point | ||||||
| Data point | ||||||
| Data point | ||||||
| Market Characteristic Lines | ||||||
| Security market line: | ||||||
| 1-Year | Healthcare | Inverse | Biotech | |||
| T-Bill | Fund | ETF | Fund | |||
| Risk-free rate | ||||||
| Required market return | ||||||
| Market beta | ||||||
| Investment required return | ||||||
| Investment expected return | ||||||
| Difference | ||||||
| Security Market Line | ||||||
| END | ||||||
B
The Security Market Line
Beta
Required rate of return
Market Characteristic Lines
S&P 500 returns
Investment returns
The Security Market Line
Beta
Required rate of return
Market Characteristic Lines
S&P 500 returns
Investment returns
The Security Market Line
Beta
Required rate of return
Market Characteristic Lines
S&P 500 returns
Investment returns
