For two companies and the respective stock market, the information over ten consecutive trading days is as
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Question:
For two companies and the respective stock market, the information over ten consecutive trading days is as follows: | ||||||||
Trading Day | Share Price of Company A | Share Price of Company B | Market Index | |||||
1 | $11.00 | $14.40 | 7000 | Investment amount in Company A's shares | 65000 | |||
2 | $11.20 | $17.70 | 7080 | Investment amount in Company B's shares | 35000 | |||
3 | $11.50 | $19.80 | 7100 | Risk-free rate | 0.0205 | |||
4 | $11.80 | $22.50 | 7400 | |||||
5 | $11.60 | $19.20 | 7090 | |||||
6 | $11.44 | $15.50 | 7000 | |||||
7 | $11.50 | $17.70 | 7095 | |||||
8 | $11.44 | $19.50 | 7060 | |||||
9 | $11.50 | $20.50 | 7060 | |||||
10 | $11.80 | $22.20 | 7100 | |||||
Assume the average inter-day return of the shares over the ten days is also the expected return for these shares for the foreseeable future. | ||||||||
An investor plans to invest the amount indicated above | ||||||||
i. Determine the beta of both companies' shares. | ||||||||
ii. Determine the beta of the portfolio. | ||||||||
iii. What do the beta values of the shares and that of the portfolio indicate? | ||||||||
iv. What is the market risk premium if the risk-free rate is as indicated above? | ||||||||
v. If the standard deviation of returns for Company A and B shares are 1.73% and 13.85%, respectively, and the correlation coefficient between returns of the two companies' shares is 0.76, determine the risk of the two-asset portfolio. | ||||||||
(PLEASE PROVIDE ALL WORKING AND FORMULAS AS REQUIRED FOR EACH QUESTION) |
Related Book For
Federal Taxation 2016 Comprehensive
ISBN: 9780134104379
29th Edition
Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson
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