1) Portfolio Return Year-to-date, Company X had earned a -2 percent return. Duri

Question

1) Portfolio Return Year-to-date, Company X had earned a -2 percent return. During the same time period, Company Y earned 10 percent and Company Z earned 15 percent. If you have a portfolio made up of 50 percent Company X, 30 percent Company Y, and 20 percent Company Z, what is your portfolio return?

2) You hold the positions in the table below.

COMPANY PRICE # SHARES BETA

Goodmonth $25.00 120 1.5

Icestone $20.00 150 2.5 Bridgerock $40.00 100 – 1.0

A. What is the beta of your portfolio?

B. If you expect the market to earn 13 percent and the risk-free rate is 3 percent, what is the required return of the portfolio?

3) Team Sports has 6 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 200 thousand bonds ($1,000 par). If the common shares are selling for $24.50 per share, the preferred share are selling for $20 per share, and the bonds are selling for 65 percent of par, what would be the weight used for the common stock in the computation of Team's WACC?

Explanation / Answer

1)

Portfolio return:

= -2%×0.50+10%×0.30+15%×0.20

= 5%

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