Assignment
1. Suppose you make a one-time $ 15,000 investment into an account that yields a 9% annual return. If you keep the account for 8 years, what will be the account balance? Do not include the dollar sign, $, and round your answer to 2 decimal places; for example, 2345.25.
2. You are negotiating to buy a new car with a car salesman at a local dealer. You have negotiated the price to $39,000. You have $5,000 to put towards the down payment and plan to get a loan for the rest. If you can get an annual interest rate of 4 percent APR (with monthly compounding) over a 5-year period, what would be your monthly payment? Round it to two decimal place (cents), e.g., 234.56.
3. Calculate the required rate of return for Mars Inc.'s stock. The Mars's beta is 1.9 , the rate on a long-term T-bond is 6.3 percent, the expected return on the market is 11.5 percent, the market has averaged a 14 percent annual return over the last six years, and Mars has averaged a 14.4 return over the last six years. (Do not include the % sign and round to two decimal places, i.e., 18.35)
4. Consider the following information and then calculate the required rate of return for the Scientific Investment Fund, which holds 4 stocks. The market's required rate of return is 16%, the risk-free rate is 4%, 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
|
1.2
|
Round it to two decimal places without the percent sign (%), e.g., 13.56.
5. A stock has an expected return of 12.38 percent. The beta of the stock is 1.4 and the risk-free rate is 5 percent. What is the market risk premium?
(Answer in a percentage, but do not include the % sign and round to two decimal places, i.e., 18.35)
6. Given the following probability distribution, what is the expected return for Security J? (Expresss your answer in percentage, but do not include the percent sign, %, and round it to two decimal place, i.e., 14.67)
|
State
|
Pi
|
rJ
|
|
1
|
0.1
|
4%
|
|
2
|
0.5
|
11
|
|
3
|
0.4
|
19
|
7. You have been scouring The Wall Street Journal looking for stocks that are "good values" and have calculated the expected returns for five stocks. Assume the risk-free rate (rRF) is 7 percent and the market risk premium (rM -rRF) is 2 percent. Which security would be the best investment? (Assume you must choose just one.)
| Expected Return |
Beta |
|
9.01%
|
1.70 |
|
7.06%
|
0.00 |
|
5.04%
|
-0.67 |
|
8.74%
|
0.87 |
|
11.50%
|
2.50 |
8. You have the following data on three stocks:
|
Stock
|
Standard Deviation
|
Beta
|
|
A
|
0.21
|
0.95
|
|
B
|
0.18
|
1.12
|
|
C
|
0.20
|
0.82
|
As a risk minimizer, you would choose Stockif it is to be held in isolation and Stockif it is to be held as part of a well-diversified portfolio.
Type in the blanks either A, B, or C.
9. You hold a diversified portfolio consisting of a $10,000 investment in each of 20 different common stocks (i.e., your total investment is $200,000). The portfolio beta is equal to 1.1 . You have decided to add another stock with a beta equal to 2.0 for $50,000. What will be the beta of the new portfolio? (Round to two digit decimal places)
10. A real estate investment has the following expected cash flows:
Year Cash Flows
1 $8,000
2 18,000
3 20,000
4 25,000
The discount rate is 12 percent. What is the investment's present value? Round it to two decimal places, i.e., 1234.45.