Question

A securities dealer has equity holdings as follows: a. What is the beta of the dealer’s...

A securities dealer has equity holdings as follows:

a. What is the beta of the dealer’s equity holdings?

b. What is the market risk of the dealer’s equity holdings if the market return has been -4.95% or lower 5 times in the last 2500 trading days?

c. Specify the level of adversity indicated by this DEAR and the method used.

Company

Position

Number of shares

Price per share

Equity beta

Tenet Healthcare

long

1000

28.52

1.80

Meritor

long

1500

21.61

2.25

Simpson Manufacturing

long

300

83.27

1.32

Qorvo Inc

short

500

101.86

1.32

Homework Answers

Answer #1

a) The beta of Dealer's Equity holding is: 2.5785

Company Position Number of Shares Price per Share Equity Beta Shares x Price Weights Beta x Weights
Tenet Healthcare Long 1000 28.52 1.8 28520.00 0.82 1.476
Meritor Long 1500 21.61 2.25 32415.00 0.93 2.0925
Simpson Manufacturing Long 300 83.27 1.32 24981.00 0.71 0.9372
Qorvo Inc Short -500 101.86 1.32 -50930.00 -1.46 -1.9272
34986.00 2.5785

b) 2.5785*4.95%=12.76%

c) CAPM Method is used

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