# Question: James Fromholtz from Problem is evaluating the investment posed in

James Fromholtz from Problem is evaluating the investment posed in that problem and wants to apply his recently acquired understanding of the security market line concept to his analysis.

a. If the risk-free rate of interest is currently 2.5 percent, and the beta for the investment is 2, what is the slope of the security market line for the real estate mortgage security investment?

b. James is also considering the investment of his money in a market index fund that has an expected rate of return of 10 percent. What is the slope of the security market line (i.e., the reward-to-risk ratio) for this investment opportunity?

c. Based on your analysis of parts a and b, which investment should James take? Why?

a. If the risk-free rate of interest is currently 2.5 percent, and the beta for the investment is 2, what is the slope of the security market line for the real estate mortgage security investment?

b. James is also considering the investment of his money in a market index fund that has an expected rate of return of 10 percent. What is the slope of the security market line (i.e., the reward-to-risk ratio) for this investment opportunity?

c. Based on your analysis of parts a and b, which investment should James take? Why?

## Answer to relevant Questions

a. Compute the expected rate of return for Intel common stock, which has a 1.2 beta. The risk-free rate is 3.5 percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 16 ...CSB, Inc. has a beta of .765. If the expected market return is 10.5 percent and the risk-free rate is 3.5 percent, what is the appropriate expected rate of return of CSB (using the CAPM)?You own a portfolio consisting of the following stocks:The risk-free rate is 4 percent. Also, the expected return on the market portfolio is 10 percent.a. Calculate the expected return of your portfolio. b. Calculate the ...Pybus, Inc. is considering issuing bonds that will mature in 20 years with an 8 percent annual coupon rate. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get an AA rating on ...The seven-year $1,000 par bonds of Vail Inc. pay 9 percent interest. The market’s required yield to maturity on a comparable-risk bond is 7 percent. The current market price for the bond is $1,100.a. Determine the yield to ...Post your question