3b) We need to calculate the weighted average beta of the portfolio. This is 160/500*0.4+120/500*1.8..... = 1.74. Now we use the security market line equation and get 3.0% + (7.6%)*1.74=16.22%. Kish's required rate of return is 16.22%.

3c) Kish would be indifferent to purchasing the stock at an expected rate of return of 16.22%, when the required rate equals the expected rate.

Apr 11th, 2015

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