FINANCE FOR EXECUTIVES
Please answer the problems in Excel and submit the Excel spreadsheet. A template Excel file “Finance for Executives”.
These cells have been formatted to display the correct number of decimal places. No rounding should be necessary. You can add additional calculations elsewhere in the spreadsheet, but please put your answers in the highlighted cells.
Assume the risk-free rate is 1% (rf = 1%), the expected return on the market portfolio is 5% (E[rM] = 5%) and the standard deviation of the return on the market portfolio is 15% (σM = 15%). (All numbers are annual.) Assume the CAPM holds.
a. What are the expected returns on securities with the following betas:
(i) β = 1.4
(ii) β = 0.6
(iii) β = -0.2
b. What are the betas of securities with the following expect returns:
c. What are the portfolio weights (in the risk-free asset and the market portfolio) for efficient portfolios (portfolios on the efficient frontier/CML) with expected returns of
d. What are the portfolio weights (in the risk-free asset and the market portfolio) for efficient portfolios (portfolios on the efficient frontier/CML) with standard deviations of
e. For a moment (but just a moment) assume that the CAPM may not hold. A non-dividendpaying stock has a current price of $50/share and an expected price in 1 year of 2 $53/share (based on your personal analysis of the company’s prospects).
(i) If the stock has a beta of 1 (β = 1.0), what is its alpha (α)?
(ii) What is the alpha (α) if the beta is 2 (β = 2.0)?
How it Works?
How it Works?
Step 1:- Want to buy solution for this. Please click on submit your assignment here and then fill all details and please mentioned product code at the end of the case. Product code is extremely important to locate your assignment. You can also mail us by keeping product code as mail subject to firstname.lastname@example.org
Step 2:- As soon as we received your details, we will inform you with through email about quotations of the given assignment. Requesting you to please mention your budget. Also ensure our email email@example.com should not go into your spam folder.
Step 3:- Once you agree with our price, click on pay now and pay the agreed amount and once we received the payment assignment will be delivered before agreed deadline.
Step 4:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.
Our Features for Assignment Help Services
Plagiarism Free Solution
The first and foremost things that we promise to our customer is plagiarism free solution i.e. a complete and unique solution as per customer’s university requirements.
Excellent Customer Care Services
You can feel our responsiveness once you use our service. Our team of excellent and dedicated customer service representatives are always ready to provide best customer care service 24X7 . Just drop a mail to firstname.lastname@example.org and you can receive response in just no time.
Multiple Stage Quality Assurance
We design a unique multiple stage quality assurance team to ensure plagiarism free, original, relevant and as per customer’s requirements. We not only give importance to accurate solutions or writing but also we give equal importance to references style too.
Privacy and Confidentiality
We believe in maintaining complete privacy and confidentiality of all our clients. None of the information furnished to us is shared with anyone else.
We receive requests from clients all over the World. Most of our customers are from USA, UK, Australia, Canada, UAE, Muscat, Oman, Qatar, UAE, New-Zealand, France Germany etc.
- Accounting Homework Help
- Accounting Assignment Help
- Computer Science Homework Help
- Management Homework Help
- Finance Assignment Help
- Online Essay Writing Help
- Strategic management case study help
- Case Study Assignment Help
- Dissertation Writing Help
- Trade finance case study help
- Project Management Assignment Help
- Mechanical Engineering Homework Help
- Online Quiz Help
- Maths homework Help
- Online Exam Help
- Economics Assignment Help
- Economics Homework Help
- English Homework Help
- Macroeconomics Homework Help
- Microeconomics Homework Help
- Statistics Assignment Help
- Australia Taxation Homework Help
- Supply chain management homework help
- Taxation homework help
- USA taxation assignment help
- Advanced accounting homework help online
- Auditing homework writing help
- Human resource management homework help
- Nursing homework help online
- Psychology homework help online
- Sociology homework help online
- Ratio analysis homework help online
- Strategic Management Homework Help Online
- Mba operations management homework help
- Human resource management homework help
- Operations management homework help
2. Assume that there are 3 firms in an industry for which you wish to compute an industry beta. The betas of these 3 firms are 1.1, 1.2, and 1.4.
a. What is the beta of an equal-weighted portfolio of the 3 firms?
b. If the market capitalizations of the 3 firms are $100 million (beta 1.1), $200 million (beta 1.2), $300 million (beta 1.4), what is the beta of a market capitalization value-weighted industry portfolio.
3. Consider a firm with two equally sized divisions (in terms of their value) that engage in completely different lines of business with different risks.
a. If these 2 divisions have betas of 0.8 and 1.3, what is the beta of the firm?
b. If one division has a beta of 0.8, and the beta of the firm is 1.0, what is the beta of the second division?
c. For the firm in part (b), what beta should be used to compute the cost of capital for the low risk division, i.e., should it be the firm beta or the divisional beta?
4. XYZ Inc. has expected earnings over the next year of $2/share (E[E1] = 2). The company is expected to maintain an earnings retention rate of 40% (b = 0.4), i.e., 60% of earnings are expected to be paid out as dividends every year. The company has a beta of 2, the risk-free rate is 1% (rf = 1%), and the market risk premium is 4% (E[rM]-rf = 4%).
a. If the growth rate in earnings is expected to be 3% in perpetuity
(i) What is the value of the stock?
(ii) What is the expected return over the next year?
b. If the current price of the stock is $16/share, what is the implied growth rate of earnings (and dividends)?
XYZ Inc. is expected to pay no dividends for the next 5 years. However, at the end of the sixth year (at time 6), the company is expected to pay a dividend of $1/share. Dividends are expected to grow at 10% per year for the following 9 years (through the end of the 15th year, i.e., time 1
5), then to grow at 3% every year thereafter (forever). Assume the appropriate discount rate (required return) is 6%.
a. What is the expected value of the stock at time 15 (not including the time 15 dividend)?
b. What is the expected value of the stock at time 5?
c. What is the value of the stock today?
6. Assume the risk-free rate is 1% (rf = 1%), the expected return on the market portfolio is 5% (E[rM] = 5%) and the standard deviation of the return on the market portfolio is 15% (σM = 15%). Assume the CAPM holds. A stock with a beta of 1 has a return standard deviation (volatility) of 30%.
a. What is the standard deviation (volatility) of the systematic component of the stock’s return?
b. What is the standard deviation (volatility) of the idiosyncratic component of the stock’s return?
c. What fraction of the stock’s return variance is systematic?
Looking for this assignment, please submit your details here with product code mentioned above.