4 Finance questions

1.(Systemic Risk and Expected Rate of Return) Calculate the expected increase in the value of each firm’s shares if the market portfolio were to increase by 10%. Perform the same calculation where the market drops by 10%.

Company Beta Estimate Expected Increase

Computer Firms

A 2.68 %(round 2 decimal places)

B 1.45 %

C 1.32 %

Utility Firms

D 0.72 %

E 0.37 %

F 0.82 %

Company Beta Estimate Expected Decrease

Computer Firms

A 2.68 %(round 2 decimal places)

B 1.45 %

C 1.32 %

Utility Firms

D 0.72 %

E 0.37 %

F 0.82 %

Which set of firms has the most volatile stock returns Computer or Utilities?

2.(Annuity Payments)Bill purchased a house for $70,000. He put $25,000 down and agreed to pay the rest off over the next 15 years in 15 equal payments that include principal payments plus 12% compound interest on the unpaid balance. What will these equal payments be?

a) How much does he need to borrow. (Should be $45,000)

b) How much will the 15 equal payments be? Round to nearest cent.

3.(Calculating Rates of Return) On December 24, 2007, the S&P 500 index was 1,410 and on December 24, 2008, the index was 860. If the average dividend paid on the stocks in the index is 4% of the value of the index at the beginning of the year, what is the rate of return earned on the S&P index?

4. Portfolio Beta and Capital Asset Pricing Model(CAPM).

Asset Beta First Portfolio Second Portfolio

A 2.40 20% 30%

B 0.90 20% 30%

C 0.60 30% 20%

D -1.60 30% 20%

a.)What is the beta for each portfolio?( I have 0.36 for First and 0.79 for Second)

b.) If the risk free rate on interest were 4.5% and the market risk premium were 7.5%, what rate of return would you expect to earn from each portfolio?