1. You are creating a $25,000 stock portfolio with two component investments: St

Question

1.

You are creating a $25,000 stock portfolio with two component investments: Stock X which has a 12% expected return; and Stock Y which has expected return of 9.2%. If the goal is a portfolio with an expected return of 10.2%, what percentage of the portifolio should be invested in each stock? (3) (simple algebra) A stock has an expected return E(R) 11.6%; the Rf rate is 1.7%; and market Risk Premium (MRP) is 7.2%. What is the Bets of the stock? You own a portfolio is equally as risky as the market, what is the beta of the second risky stock? (2) (this is simple arithmetic) SlowDown, Inc is evaluating a project which has the following stream of unconventional Cash Flows (CFs): (5) If Speedway generally discounts capital project cash flows @ 14% what is this project's Modified Internal Rate of Return (MIRR) calculated using the Discounting Approach to reduce the number of sign changes to one.

Explanation / Answer

a) w1 * 12 + 9.2 * w2 = 10.2

w1 + w2 = 1

solving these eq w1 = 35.71, w2 = 64.29

2) acc to capm 11.2 = 1.7 + beta*(7.2)

so beta = 1.375

3) market portfolio has a beta = 1

1/3*(0) + 1/3 * (1.27) +1/3 *beta = 1

beat = 1.73

4) FV = 800000(1.14)^3 - 300000* (1.14)^2 + 620000*(1.14) + 620000

= 2181417

0 = -1450000 + FV/(1+MIRR)^4

MIRR = 10.74

PLS RATE MY ANSWER

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