harshraj

harshraj

Lv1

Harsh RajUniversity of Delhi - DU

0 Followers
1 Following
1 Helped

ANSWERS

Published11

Subjects

Management1Information Technology1Calculus1Physics3Finance1Economics4

Consider the following statement to answer Questions i-iv: You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of27%. The Treasury-bill rate is 7%. (i) One of your clients chooses to invest 70% of a portfolio in your fund and 30% in a T-bill moneymarket fund. What is the expected value and standard deviation of the rate of return on yourclient’s portfolio?(2 marks) (ii) Suppose that your client decides to invest in your portfolio a proportion y of the total investmentbudget so that the overall portfolio will have an expected rate of return of 15%. (a) What is the proportion y? (Hint: Use CAPM formula) (b) Further suppose that your risky portfolio includes the following investments in the givenproportions: Stock A (27%), Stock B (33%), and Stock C (40%). What are your client’sinvestment proportions in your three stocks and the T-bill fund?(2 marks) (iii) Now suppose that your client prefers to invest in your fund a proportion ythat maximizes theexpected return on the overall portfolio subject to the constraint that the overall portfolio’sstandard deviation will not exceed 20%. (a) What is the investment proportion, y? (b) What is the expected rate of return on the overall portfolio?(2 marks) (iv) Suppose that your client’s degree of risk aversion is A = 3.5. What proportion, y, of the totalinvestment should you suggest that he invest in your fund?(2 marks) (v) The market price of a security is $40. Its expected rate of return is 13%. The risk- free rate is 7%and the market risk premium is 8%. What will be the market price of the security if itscovariance with the market portfolio doubles (and all other variables remain unchanged)?Assume that the stock is expected to pay a constant dividend in perpetuity.(2 marks) QUESTION 2: OMEGA Currently Omega Corporation’s shares are selling at $60 per share and company is paying $5 per share dividend. Dividends are expected to grow at an annual rate of 3% for foreseeable future. Required rate of return for investors is 12% At the same time, Heller Corporation’s shares are selling at $58 per share and company is paying $4 per share dividend. Dividends are expected to grow at an annual rate of 5% for foreseeable future. Required rate of return for investors is 12% a) Calculate the current value of each stock on the basis of Dividend Discount Model. b) On the basis of above calculation, determine either each stock is overvalued or undervalued. (5 marks)

(i) To calculate the expected value and standard deviation of the rate of retu...
Answer: Step-by-step explanation:To calculate the angle of refraction in the l...
To find the thinnest oil film of refractive index 1.52 on the surface of water...
Answer: The Law of Demand states that there is an inverse relationship between...
Answer: To determine which market has a larger consumer surplus at a price of ...
Answer: In economics, demand refers to the quantity of a good or service that ...
To find the consumer surplus, we need to understand the relationship between t...
Answer: Refraction is a phenomenon that occurs when light waves travel from on...
Answer: To perform the tasks you mentioned using the elevation raster, flow di...
Answer: To determine the properties of the given schedule, let's analyze each ...
Human Resource Management (HRM) as a formal discipline and practice has evolve...

Weekly leaderboard

Start filling in the gaps now
Log in