Question

1. Calculate the expected rate of return for Tech.com Incorporated, Sam’s Grocery Corporation, and the S&P 500 Index.
2. Calculate the standard deviations of the estimated rates of return for Tech.com Incorporated, Sam’s Grocery Corporation, and the S&P 500 Index.
3. Which is a better measure of risk for the common stock of Tech.com Incorporated and Sam’s Grocery Corporation—the standard deviation you calculated in Question 2 or the beta?
4. Based on the beta provided, what is the expected rate of return for Tech.com Incorporated and Sam’s Grocery Corporation for the next year?
5. If you form a two-stock portfolio by investing $30,000 in Tech.com Incorporated and $70,000 in Sam’s Grocery Corporation, what is the portfolio beta and expected rate of return?
6. If you form a two-stock portfolio by investing $70,000 in Tech.com Incorporated and $30,000 in Sam’s Grocery Corporation, what is the portfolio beta and expected rate of return?
7. Which of these two-stock portfolios do you prefer? Why?
On your first day as an intern at Tri-Star Management Incorporated the CEO asks you to analyze the following information pertaining to two common stock investments, Tech.com Incorporated and Sam’s Grocery Corporation. You are told that a one-year Treasury bill will have a rate of return of 5% over the next year. Also, information from an investment advising service lists the current beta for Tech.com as 1.68 and for Sam’s Grocery as 0.52. You are provided a series of questions to guide your analysis.


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  • CreatedMarch 26, 2015
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