Question

1. You have a portfolio that has equal amounts invested in the following common stocks. What is the beta of the portfolio?

Security	Beta
Bank of America	1.96
CA Technologies	1.24
Toyota Motor Corporation	0.65
International Business Machines	0.62

A.1.05

B.1.00

C.1.12

D.1.19

2. Logtec is buying new equipment that has the following cash flows:

Year	0	1	2	3
Cash Flow	-$500	$100	$200	$250

  
What is the NPV if the interest rate is $9%?

A. -$17.7

B. $482.24

C. -$537.78

D. -$46.88

Answer 1

Part A:

Portfolio Beta = Weighted Avg Beta of securities in that Portfolio.

Security	Weight	Beta	WTd Beta
Bank of America	0.25	1.96	0.49
CA Technologies	0.25	1.24	0.31
Toyota	0.25	0.65	0.1625
IBM	0.25	0.62	0.155
Portfolio Beta	1.1175

OPtion C is correct.

Part B:

NPV = PV of Cash Inflows - PV of Cash outflows

Year	CF	PVF @9%	Disc CF
0	$ -500.00	1.0000	$ -500.00
1	$    100.00	0.9174	$      91.74
2	$    200.00	0.8417	$    168.34
3	$    250.00	0.7722	$    193.05
NPV	$     -46.88

OPtion D is correct.