Question Details

company stock






Multiple Choice:  Problems

Easy:

 .	You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 1.12.  You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral rights company stock (b = 2.00).  What is the new beta of the portfolio?

a.	1.1139
b.	1.1700
c.	1.2311
d.	1.2927
e.	1.3573

	
 .	Your mother- holds well-diversified portfolio has an expected return of 12.0% and a beta of 1.20.  She is in the process of buying 100 shares of Safety Corp. at $10 a share and adding it to her portfolio.  Safety has an expected return of 15.0% and a beta of 2.00.  The total value of your current portfolio is $9,000.  What will the expected return and beta on the portfolio be after the purchase of the Safety stock?

		rp			bp	
a.	11.69%; 1.22
b.	12.30%; 1.28
c.	12.92%; 1.34
d.	13.56%; 1.41
e.	14.24%; 1.48

 .	Suppose that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) Talcott Inc.- beta is 1.00, and (5) its realized rate of return has averaged 15.0% over the last 5 years. Calculate the required rate of return for Talcot Inc.

a.	10.29%
b.	10.83%
c.	11.40%
d.	12.00%
e.	12.60%

Medium:

	
 .	A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium.  The required rate of return on the stock is 15% versus a required return on an average stock of 10%.  Now the required return on an average stock increases by 30.0% (not percentage points).  The risk-free rate is unchanged.  By what percentage (not percentage points) would the required return on your stock increase as a result of this event?

a.	36.10%
b.	38.00%
c.	40.00%
d.	42.00%
e.	44.10%

 .	Calculate the required rate of return for the Wagner Assets Management Group, which holds 4 stocks.  The market- required rate of return is 15.0%, the risk-free rate is 7.0%, and the Fund's assets are as follows:

                     Stock         Investment         Beta
                       A           $  200,000         1.50
                       B              300,000        -0.50
                       C              500,000         1.25
                       D            1,000,000         0.75

a.	10.67%
b.	11.23%
c.	11.82%
d.	12.45%
e.	13.10%





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