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Fin571 Week 5 Quiz

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User Generated
Subject
Accounting
School
University of Phoenix
Type
Homework
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FIN571 Week 5 Quiz
Student Name
Institutional Affiliation

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FIN571 Week 5 Quiz
1. A mutual fund manager expects her portfolio to earn a rate of return of 14% this year. The beta of
her portfolio is 0.8. The rate of return available on risk-free assets is 7% and you expect the rate
of return on the market portfolio to be 17%.
What expected rate of return would you demand before you would be willing to invest in this
mutual fund? (Do not round intermediate calculations. Enter your answer as a whole
percent.)
Expected rate of return
15
%
2. A share of stock with a beta of 0.66 now sells for $41. Investors expect the stock to pay a year-
end dividend of $4. The T-bill rate is 5%, and the market risk premium is 8%. If the stock is
perceived to be fairly priced today, what must be investors’ expectation of the price of the stock
at the end of the year? (Do not round intermediate calculations. Round your answer to 2
decimal places.)
Stock price
$47.32
3. We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial
distress. It prospers in recessions when other firms are struggling. Consequently, its beta is
negative, −0.2.
a. If the interest rate on Treasury bills is 4% and the expected return on the market portfolio is
14%, what is the expected return on the shares of the law firm according to the
CAPM? (Enter your answer as a whole percent.)
Expected return
1%
%
b. Suppose you invested 90% of your wealth in the market portfolio and the remainder of your
wealth in the shares in the law firm. What would be the beta of your portfolio? (Do not
round intermediate calculations. Round your answer to 2 decimal places.)
Beta
0.90%
4. A stock with a beta of 1.8 has an expected rate of return of 16%. If the market return this year
turns out to be 6 percentage points below expectations, what is your best guess as to the rate of
return on the stock? (Do not round intermediate calculations. Enter your answer as a percent
rounded to 1 decimal place.)
Stock return
0.052
%
5. A project under consideration has an internal rate of return of 13% and a beta of 0.8. The risk-free
rate is 3%, and the expected rate of return on the market portfolio is 13%.

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FIN571 Week 5 Quiz Student Name Institutional Affiliation FIN571 Week 5 Quiz 1. A mutual fund manager expects her portfolio to earn a rate of return of 14% this year. The beta of her portfolio is 0.8. The rate of return available on risk-free assets is 7% and you expect the rate of return on the market portfolio to be 17%. What expected rate of return would you demand before you would be willing to invest in this mutual fund? (Do not round intermediate calculations. Enter your answer as a whole percent.) Expected rate of return 15 % 2. A share of stock with a beta of 0.66 now sells for $41. Investors expect the stock to pay a yearend dividend of $4. The T-bill rate is 5%, and the market risk premium is 8%. If the stock is perceived to be fairly priced today, what must be investors’ expectation of the price of the stock at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price $47.32 3. We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It prospers in recessions when other firms are struggling. Consequently, its beta is negative, −0.2. a. If the interest rate on Treasury bills is 4% and the expected return on the market portfolio is 14%, what is the expected return on the shares of the law firm according to the CAPM? (Enter your answer as a whole percent.) Expected return 1% % b. Suppose you invested 90% of your wealth in the market portfolio and the remain ...
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