Suppose that you hold a diversified portfolio consisting of 20 different stocks, with $7,500 invested in each of the stocks. The portfolio beta is equal to 1.12. You have decided to sell one of the stocks in your portfolio with a beta equal to 1.0 for $7,500 and to use the proceeds to buy another stock for your portfolio. Assume that the new stock’s beta is equal to 1.75. Calculate your portfolio’s new beta.
Answer to relevant QuestionsSuppose rRF = 9%, rM = 14%, and βX = 1.3.a. What is rX, the required rate of return on Stock X?b. Now suppose rRF (1) Increases to 10 percent (2) Decreases to 8 percent. The slope of the SML remains constant. How would each ...Assume that you recently graduated with a major in finance and just landed a job in the trust department of a large regional bank. Your first assignment is to invest $100,000 from an estate for which the bank is trustee. ...Why is there a cost to the firm for retaining earnings to fund investments?The Gupta Company’s cost of equity is 16 percent. It’s before-tax cost of debt is 13 percent, and its marginal tax rate is 40 percent. The stock sells at book value. Using the following balance sheet, calculate Gupta’s ...Refer to Problem 12-19. Management now decides to incorporate project risk differentials into the analysis. The new policy is to add 2 percentage points to the cost of capital of those projects significantly riskier than ...
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