User Account

All Pages

Generate attractive returns in the future

Assignment Help Financial Management
Reference no: EM13969827

1. Mary decides to set aside a small part of her wealth for investment in a portfolio that has greater risk than her previous investments because she anticipates that the overall market will generate attractive returns in the future. She assumes that she can borrow money at 3% (the risk-free rate) and achieve the same return on the S&P 500 as before: an expected return of 12% with a standard deviation of 22%.

A. Calculate Mary's expected risk and return if she borrows 20%, 60% and 100% of her initial investment. Show your calculations.

B. What is the slope of he capital market line for part A? Show your calculations.

C. Assume that Mary can borrow at 6 percent instead the risk-free rate. What would be the expected return and risk if Ms. Moneypenny borrows 20%, 60% and 100% of her initial investment? Show your calculations.

D. How does the slope of the capital market line change from part A to part C? Explain why the slope of the capital market line changes. Show your calculations.

2. An investor is considering investing in a small-cap stock fund and a general bond fund. The correlation between the returns of the two funds is 0.10. The returns and standard deviations are given in the following table.

Expected Annual Return

Standard Deviation of Returns

Emerging Markets stock fund

28%

40%

Global Equities Fund

16%

21%

A. If the investor requires a portfolio return of 23 percent, what should the percentage invested in each fund be? Show your calculations.

B. What is the standard deviation of a portfolio constructed according to the weights computed in part A? Show your calculations.

Reference no: EM13969827

Questions Cloud

Computing the constant growth dividend model : The last dividend of Delta, Inc was $2.69, the growth rate of dividend is expected to be 2.46% and the required rate of return on this stock is 12.46%. What is the stock price according to the constant growth dividend model? Round the answer to tw..
Examine the strategic national risk assessment : Examine The Strategic National Risk Assessment in Support of PPD 8: A Comprehensive Risk-Based Approach toward a Secure and Resilient Nation and answer the following question. Refer to the table of National-Level events on Pg. 2-4, what events from t..
Did the writer give enough background for reader : Then 150-200 words of personal review and comments.(Don't revirew on science, review on how the paper is writing) example: Did the writer give enough background for reader in order to understand the entire science articel?
Explore healthcare disparities in the u.s. : Explore healthcare disparities in the U.S. and determine the groups of people most likely to experience discrimination in healthcare services. Recommend at least one policy that could eliminate healthcare disparities in the U.S. Please justify your a..
Generate attractive returns in the future : 1. Mary decides to set aside a small part of her wealth for investment in a portfolio that has greater risk than her previous investments because she anticipates that the overall market will generate attractive returns in the future. She assumes t..
Explain how crowd management and risk management : Explain how crowd management and risk management differ Name some crowd management problems that you have observed either on television or in person and explain how they were dealt with
Problem regarding the nominal annual rate of interest : Suppose you deposit 35,700 today and your account will accumulate to 84,000 in 6 years. What is the nominal annual rate of interest, given quarterly compounding?
Why is diversity and inclusion important to campus culture : Identify a few dimensions of diversity that you feel make up your identity. Keeping these dimensions in mind, what do you bring to the diversity of our UT community? Provide examples of experiences to illustrate your answer.
Explain the types of competition marketers face : Explain the types of competition marketers face: discretionary income competition, product competition, and brand competition. What are a monopoly, an oligopoly, monopolistic competition, and pure competition

Reviews

Write a Review

Financial Management Questions & Answers

  Contrast rights of bond holders and preferred stockholders

Describe and contrast the rights of bond holders and preferred stockholders. Which has the best position in a default, which one would you buy all other things being equal.

  What is brrs unlevered cost of capital

Assume the assumptions underlying the APV are relevant. Brakes and Rakes Co. (BRR) has required return on levered equity equal to 20%, required return on debt of 9%, and corporate tax rate of 25%. The required return on the market is 15%. BRR has deb..

  Big stevies is the maker of swizzle sticks

Big Stevie's is the maker of swizzle sticks; they are considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $90,000 and will generate net cash inflows of $21,000 a year for 9 years.

  Owner ship and control are not separated

Sole proprietorships have all of the following advantages except easy to set up. single taxation of income. Limited liability. Owner ship and control are not separated.

  What is the company cost of new equity

Riverhawk Store (RS) dividends have been growing at 3 percent annually and are expected to continue this growth rate indefinitely. The company recently paid a dividend of $1.25 per share. Next year, it expects to add $3 million to retained earnings. ..

  What is the expected price of the stock three years from now

Tre-Bien, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. Th..

  What is the effective annual rate on this loan

Suppose Community Bank offers to lend you $20,000 for one year at a nominal annual rate (annual percentage rate) of 6.00%, but you must make interest payments at the end of each month and then pay off the $20,000 principal amount at the end of the ye..

  Expansion project-requires initial fixed asset investment

Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.55 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be wort..

  Equipment will lead to cash flows

Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $819,822, $863,275, $937,250, $1,020,110, $1,212,960, and $1,225,000 over the next six years. If the appropriate disco..

  Describe the average and marginal tax rates

Describe the average and marginal tax rates. Explain which rate is most relevant if your income is increasing and why it is the relevant rate.

  Define classes of shares with unequal rights

When comparing common stock of the same company it is fair to say that all shares, no matter how many classes, are all created with the same equal rights. companies sometimes have two different classes of shares with unequal rights to dividends an..

  Compute the annual depletion on a percentage basis

Western Carolina Coal Co. expects to produce 125,000 tons of coal annually for 15 years. The deposit cost $2M to acquire; the annual gross revenues are expected to be $9.50 per ton, and the net revenues are expected to be $4.25 per ton. Compute the a..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd