A company hat a beta of 3.25. If the market return a expected to be 14 percent a

Question

A company hat a beta of 3.25. If the market return a expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return? 22.750% 33.125% 45.500% 51.000% The stocks of small companies that are priced below $I per share bargain stocks hedge fund stocks penny stocks stock market bubble stocks Compute the MIRR for Project Y and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 12 percent. 7.62%, accept 7.62%, reject 47.09%, accept 47.09%, reject You have a portfolio with a beta of 0.9. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.5? 1.00 1.20 1.26 2.40

Explanation / Answer

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

                                 = 5.5 % + (14 - 5.5)*3.25 = 3.125%

2) Stocks of small compaies is known as penny stocks as there value is below $1

3) We need to find the IRR of the project

The IRR of the project is 5.44%, project should be rejected

4)Portfolio beta = weight of a* beta of A + weight of B * beta of B

                      = 0.4*0.9+ 0.6*1.5 = 1.26

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