1. a stock has a beta 1.13 and expected return 12.1%. a risk free asset has 5% return rate.
a) if a portfolio of the 2 assets has a beta of 0.5, what are the portfolio weights?
(hint: portfolio beta is weighted average of its individual assets)
b ) if a portfolio's expected return is 10%, what is the beta?
2. suppose the rist-free rate is 4.2% and the market portfolio has an expected return of 10.9%. the market portfolio has a variance of 0.0382. portfolio z has a correlation coefficient with the market of 0.28 and a variance of 0.385. according to the CAPM, what is the expected return of portfolio z?
3. given the following information for company a, find the wacc for the company.
a) debt 5000, 6% coupon bonds oustanding, $1000 par value, 25 years to maturity, selling for 105% of par, the bonds make semi annual payments
b ) stock 175,000 shares outstanding selling for $58 per share, beta is 1.10
c) market 7% market risk premium and 5% risk-free rate
hint: you should use excel
This post was edited by andysundala on Nov 19 2014 03:48am