Question

You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks:

Stock |
Investment |
Stock's Beta
Coefficient |

A | $160 million | 0.5 |

B | 120 million | 2.0 |

C | 80 million | 4.0 |

D | 80 million | 1.0 |

E | 60 million | 3.2 |

Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 6%, and you believe the following probability distribution for future market returns is realistic:

Probability |
Market Return |

0.1 | (5%) |

0.2 | 9 |

0.4 | 11 |

0.2 | 14 |

0.1 | 17 |

a.) Calculate Kish's required rate of return. Do not round
intermediate calculations. Round your answer to two decimal
places.

b.) Suppose Rick Kish, the president, receives a
proposal from a company seeking new capital. The amount needed to
take a position in the stock is $50 million, it has an expected
return of 14%, and its estimated beta is 1.5. Should Kish invest in
the new company? **The new stock SHOULD be
purchased.**

At what expected rate of return should Kish be indifferent to
purchasing the stock? Round your answer to two decimal
places.

Answer #1

Inv | Wt | Beta | prob | Return | ||

160 | 0.32 | 0.5 | 0.16 | 0.1 | 5 | |

120 | 0.24 | 2 | 0.48 | 0.2 | 9 | |

80 | 0.16 | 4 | 0.64 | 0.4 | 11 | |

80 | 0.16 | 1 | 0.16 | 0.2 | 14 | |

60 | 0.12 | 3.2 | 0.384 | 0.1 | 17 | |

500 | ||||||

Beta | 1.824 | Market return | 11.2 |

Required rate of return = rf+beta(market return - risk
free)

=6+1.824(11.2-6)=15.48%

b) At beta of 1.5, return should be = 6+1.5(11.2-6)=13.80%

Since return is 14% which is more , the new stock should be
purchased

Kish should be indifferent at 13.80%

You plan to invest in the Kish Hedge Fund, which has total
capital of $500 million invested in five stocks:
Stock
Investment
Stock's Beta Coefficient
A
$160 million
0.7
B
120 million
1.1
C
80 million
1.8
D
80 million
1.0
E
60 million
1.8
Kish's beta coefficient can be found as a weighted average of
its stocks' betas. The risk-free rate is 6%, and you believe the
following probability distribution for future market returns is
realistic:
Probability
Market Return...

You plan to invest in the Kish Hedge Fund, which has total
capital of $500 million invested in five stocks:
Stock
Investment
Stock's Beta Coefficient
A
$160 million
0.7
B
120 million
1.1
C
80 million
1.7
D
80 million
1.0
E
60 million
1.6
Kish's beta coefficient can be found as a weighted average of
its stocks' betas. The risk-free rate is 3%, and you believe the
following probability distribution for future market returns is
realistic:
Probability
Market Return...

You plan to invest in the Kish Hedge Fund, which has total
capital of $500 million invested in five stocks: Stock Investment
Stock's Beta Coefficient A $160 million 0.8 B 120 million 2.1 C 80
million 4.1 D 80 million 1.0 E 60 million 2.9 Kish's beta
coefficient can be found as a weighted average of its stocks'
betas. The risk-free rate is 3%, and you believe the following
probability distribution for future market returns is realistic:
Probability Market Return...

You plan to invest in the Kish Hedge Fund, which has total
capital of $500 million invested in five stocks: Stock Investment
Stock's Beta Coefficient A. $160 million 0.6, B. 120 million 1.4,
C. 80 million 2.0, D. 80 million 1.0, E. 60 million 1.9. Kish's
beta coefficient can be found as a weighted average of its stocks'
betas. The risk-free rate is 3%, and you believe the following
probability distribution for future market returns is
realistic:
Probability Market Return:...

1. Beale Manufacturing Company has a beta of 1.2, and Foley
Industries has a beta of 0.9. The required return on an index fund
that holds the entire stock market is 10.5%. The risk-free rate of
interest is 7%. By how much does Beale's required return exceed
Foley's required return?
2. Suppose you held a diversified portfolio consisting of a
$7,500 investment in each of 20 different common stocks. The
portfolio's beta is 1.83. Now suppose you decided to sell...

A.)
A mutual fund manager has a $20 million portfolio with a beta of
1.50. The risk-free rate is 4.00%, and the market risk premium is
7.0%. The manager expects to receive an additional $5 million,
which she plans to invest in a number of stocks. After investing
the additional funds, she wants the fund's required return to be
17%. What should be the average beta of the new stocks added to the
portfolio? Do not round intermediate calculations. Round...

A mutual fund manager has a $20 million portfolio with a beta of
1.40. The risk-free rate is 5.75%, and the market risk premium is
5.5%. The manager expects to receive an additional $5 million,
which she plans to invest in a number of stocks. After investing
the additional funds, she wants the fund's required return to be
14%. What should be the average beta of the new stocks added to the
portfolio? Negative value, if any, should be indicated...

A mutual fund manager has a $40 million portfolio with a beta of
1.00. The risk-free rate is 4.25%, and the market risk premium is
6.00%. The manager expects to receive an additional $29.50 million
which she plans to invest in additional stocks. After investing the
additional funds, she wants the fund's required and expected return
to be 13.00%. What must the average beta of the new stocks be to
achieve the target required rate of return? Do not round...

5)
Suppose you are the money manager of a $4.16 million investment
fund. The fund consists of four stocks with the following
investments and betas:
Stock
Investment
Beta
A
$ 280,000
1.50
B
800,000
(0.50
)
C
1,080,000
1.25
D
2,000,000
0.75
If the market's required rate of return is 11% and the risk-free
rate is 4%, what is the fund's required rate of return? Do not
round intermediate calculations. Round your answer to two decimal
places.
6)
Given the following...

ABC, a mutual fund manager, has a $40 million portfolio with a
beta of 1.50. The risk-free rate is 4.00%, and the market risk
premium is 5.00%. ABC expects to receive an additional $60 million,
which she plans to invest in additional stocks. After investing the
additional funds, she wants the fund's required and expected return
to be 13.00%. What must the average beta of the new stocks be to
achieve the target required rate of return?

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