# Mini Case

Sep 11th, 2015
SoccerBoss
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Price: \$30 USD

Question description

Chapter 6 Mini-Case: Risk, Return, and the Capital Assets Pricing Model

Review the mini-case in Chapter 6 of your text and respond to the following:
Andrea Corbridge is considering forming a portfolio consisting of Kalama Corp. and Adelphia Technologies. The two corporations have a correlation of -0.1789, and their expected returns and standard deviations are as follows:

 Kalama Corp. Adelphia Technologies Expected return (%) 14.86 23.11 Standard Deviation (%) 23.36 31.89
1. Calculate the frontier for all possible investment combinations of Kalama Corp. and Adelphia Technologies (from 0% to 100%, in 1% increments). Determine the optimal risky portfolio if the risk-free rate is 3%.
2. Andrea has \$50,000 and wants to earn a 19% expected return on her investment. Describe the optimal manner in which to structure her portfolio-both in dollar amounts and in weights relative to her \$50,000-based on the preceding information.
3. Andrea is also seriously considering buying some stock in Medford Barnett Corporation (MBC). The stock prices of MBC and the S&P for the past 25 months are tabulated below. Andrea estimates that MBC will earn a 14% return during the next year, and she expects the market to earn a 12% return during the same time period. In addition, she expects the relationship exhibited between the S&P and MBC to remain as it has in the past. Assuming that Andrea would be pulling MBC into a fully diversified portfolio, explain if buying the MBC shares a good decision.

 Month S&P MBC 1 1198.41 58.04 2 1228.81 65.36 3 1220.33 48.48 4 1234.18 53.32 5 1191.33 57.59 6 1191.50 49.23 7 1156.85 55.57 8 1180.59 50.99 9 1203.60 64.10 10 1181.27 50.45 11 1211.92 50.65 12 1173.82 51.23 13 1130.20 46.68 14 1114.58 51.09 15 1104.24 50.75 16 1101.72 59.80 17 1140.84 52.78 18 1120.68 49.22 19 1107.30 53.47 20 1126.21 49.26 21 1144.94 48.55 22 1131.13 61.32 23 1111.92 48.06 24 1058.20 58.88 25 1050.71 46.19

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