Question 1) You are the money manager of a $10 million investment fund that consists of 2 stocks with the following investment and betas. Assume that the CAPM holds, and kRF=6%, kM=14%.
|
Stock
|
Investment
|
Beta
|
|
A
|
$ 4 million
|
1.2
|
|
B
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$ 6 million
|
1.4
|
A. What is the expected return of the fund?
B. What is beta of the investment fund?
Question 2) Given the following market conditions, calculate the expected/required rate of return using the CAPM:
kRF=6%, kM=14%
A. What is bA of a security with kA=16.4%?
B. What is ki for a security with bi=1.4?
Question 3: From the information below, calculate the accounting break-even point.
Fixed costs are $ 2500/year.
Variable costs: $ 8/unit.
Depreciation: $ 500/year.
Price: $ 25/unit.
Discount rate: 10%.
Project life: 4 years.
Tax rate: 34%.
Question 4: The prices for IMB over the last 3 years are given below. Assuming no dividends were paid, what was the 3-year holding period return?
Year Price
0 $ 70
1 64
2 68
3 80
Question 5: The total annual returns on common stocks averaged 12.2% from 1926 to 1994, small company stocks averaged 17.4%, long-term government bonds averaged 5.2%, while Treasury Bills averaged 3.7%. What was the average risk premium earned by long-term Government Bonds, and small company stocks respectively?
Question 6: Tom bought 100 shares of stock at $20 each. At the end of the year, he received a total of $400 in dividends, and his stock was worth $2,500 total.
A. What was his dollar capital gain?
B. What was his total dollar return?
C. What was his total percentage return?
D. What was his total return?
Question 7: A portfolio is entirely invested into Gavin’s Mining Equity, which is expected to return 18%, and Bob's Inc. bonds, which are expected to return 6%. Three quarters of the funds are invested in Gavin's and the rest in Bob's. What is the expected return on the portfolio?