economic genious needed

Anonymous
timer Asked: Sep 30th, 2018
account_balance_wallet $10

Question description

Solve 2 questions in the attach file in Word and Excel form

1- The table below presents the expected returns and betas for five investment funds.

  • Determine the intrinsic value of Boeing using a three-stage growth model based on the following expectations (consider using an Excel spreadsheet to do your calculations):

Funds

Expected Returns

Beta

Index Fund

10.0%

1.00

Value Fund

14.0%

1.50

Growth Fund

12.5%

1.25

Small Cap

15.0%

1.75

Large Cap

8.0%

0.75

  • Using the Large Cap fund and the Small Cap fund, solve for the allocations needed to create a zero-market risk portfolio. What isthe rate of return for that portfolio?(Hint: βp = w1 + w2, where w2 = (1-w1)).
  • Using the Large Cap fund and the Small Cap fund, solve for the allocations needed to create portfolio with a beta of one. What is the rate of return for that portfolio? ?(Hint: βp = w1 + w2, where w2 = (1-w1))
  • 2- Determine whether the Index, Value, and Growth funds have return and beta combinations above or below the line you generated. Explain the arbitrage strategy you would form with each of these funds. What conclusions do you draw
  • Three growth-rate stages: growth, transition, and mature.
  • The stock’s discount rate is 9%.
  • Current EPS is $6.41.
  • Dividend payout ratio is equal to 30% until the transition period.
  • Dividend payout ratio is equal to 50% in the maturity stage.
  • Dividend payout ratio decreases by equal annual increment from 30% to 50% during the transition stage.
  • Boeing will experience a growth stage for the next 10 years in which its EPS will grow at 10%.
  • The length of Boeing’s transitional stage is five years.
  • The mature growth period starts in year 16 with an assumed dividend payout ratio of 50% and with a growth rate of 6%.
  • The transition period starts in year 11 with the growth rate decreasing by equal annual increments from 10% to 6%.
  • The value of Boeing at the beginning of the Maturity stage (Year 16) is determined by the constant growth model (Vt =Dt+1/(k − g)).

Tutor Answer

shadman001
School: University of Maryland

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Review

Anonymous
Excellent job

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