FIN 419 HOMEWORK 3 (CAPM)

FIN 419 HOMEWORK 3 (CAPM) Click Link Below To Buy: http://hwcampus.com/shop/fin-419-homework-3-capm/ Contact Us: [email protected] HOMEWORK #3 (CAPM) FIN 419 1. Mark has $5 million invested in long-term corporate bonds. The expected annual rate of return of his bond portfolio is 9%, and its annual standard deviation is 10%. His adviser recommends that Mark consider investing in an index stock fund that tracks the S&P 500 Index, has an expected return of 14%, and its standard deviation is 16%. a. Assume Mark puts all his money in a combination of the index fund and Treasury bills. Can he thereby improve his expected rate of return without changing the risk of his portfolio? The Treasury bill yield is 6%. b. Could Mark do even better by investing equal amounts in the corporate bond portfolio and the index fund? The correlation between the bond portfolio and the index fund is + 0.1. 2. The market price of a stock is $40, the stock's required rate of return is 13%, the riskless rate of interest is 7%, and the market risk premium is 8%. a. What is the stock's beta? b. If you expect to sell the stock for $50 in one year from now, is the stock properly priced currently? Assume the stock is not expected to make any payments over the year.