Determine the required rate of return on kci stock

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Reference no: EM131093284

As manager of the MSU Endowment Fund, you have been asked toevaluate a specific stock: Kampwerth Campers, Inc. (symbol KCI). You are consideringa $200,000 investment in KCI stock. You need to assess the riskiness of KCI. The standarddeviation for KCI returns is 21.25%. The standard deviation for the market is 15%. Thecorrelation between KCI and the market is 0.60. The rate of return on a risk free securityis 3%. The expected return on the market is 10%.

a. Using the Capital Asset Pricing Model, determine the required rate of return on KCIstock.

b. Comment on the riskiness of KCI compared to the market.

c. Assume the market is expected to fall by 5% next period. If you purchase $200,000 ofKCI before the market decline, what is the dollar impact that you anticipate this marketdecline will have on KCI stock?

Reference no: EM131093284

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