Question: Part a): Below are the net cash flows for two mutually exclusive projects Alpha and Beta. If the required return is 10% pa, which project/s

Part a):Below are the net cash flows for two mutually exclusive projects Alpha and Beta. If the required return is 10% pa, which project/s should be selected, assuming the projects can be repeated? Explain your choice.

01234Project Alpha(2000)15001500Project Beta(4800)1800180018001800

Part b:You currently have all your funds invested in a portfolio of shares of Polycorp (PLC). The shares have an expected return of 11%pa and a standard deviation of 21%pa. You are offered the opportunity to invest in two funds managed by the Rearguard Portfolio Management Company. One is a Bond Fund that has an expected return of 5%pa and a standard deviation of 5%pa. The other fund is one that tracks the market index and has an expected return of 14%pa and a standard deviation of 22%pa. The correlation between the index fund and the bond fund is 0.15. Construct a portfolio of the Index and Bond funds that gives the same expected return as a portfolio of Polycorp shares. What is the composition and standard deviation of this portfolio? Use this example to comment on the benefits of diversification.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Below are the net cash flows for two mutually exclusive projects Alpha and Beta. If the required return is 10% pa, which project/s should be selected, assuming the projects can be repeated? Explain...

Below are the net cash flows for two mutually exclusive projects Alpha and Beta. If the required return is 12% pa, which project/s should be selected, assuming the projects can be repeated? Explain...

Introduction Brooks Hamilton recently accepted a job with Tortuga Fishing Equipment Company 1 (Tortuga) in the company's finance department. His first few assignments were fairly straightforward and...

please see attached document. Thanks. I need the answers and I will figure out the math. Question 2 1 pts A replacement computer will cost you $3,500, but save you $750 each year because of the...

Hello, like you can you see it. I just got an answer from some friends in the 2 last pictures but I really don't like the way they did. So please do it differently and will give you a like+comments...

Business finance, please show how to work out The forecast net cash flows of two mutually exclusive projects, A and B, are shown in the following table. The NPV and IRR methods must give conflicting...

The forecast net cash flows of two mutually exclusive projects, A and B, are shown in the following table. Year (end) Project A Project B 0 ? $55,000 ? $35,000 1 $26,000 $25,100 2 $12,500 $16,900 3...

Question 10 Given the following cash flows for two mutually exclusive projects, and a required rate of return of 12%, which of the following statements is correct? Project B Project A Year 96,000...

Question 4 (20 marks) Sweet Pea shares have just paid a dividend of 80.50, which are expected to increase by 15% for the next three years. After that, they are expected to increase by 12% for the...

A car accelerates from 13m/s to 25m/s in 6.0s, what was its acceleration? How far did it travel in this time? Assume constant acceleration.

Discuss why you would want to use EVA return on capital rather than absolute EVA to compare two companies or to evaluate a firm's performance over time.

11.72 Two loads connected in parallel draw a total of 2.4 kW at 0.8 pf lagging from a 120-V rms, 60-Hz line. One load absorbs 1.5 kW at a 0.707 pf lagging. Determine: (a) the pf of the second load,...

The completed worksheet for Cantu Corporation as of December 31, 2019, after the company had completed the first month of operation, appears across the tops of pages 152-153. INSTRUCTIONS 1. Prepare...

Congress regulates corporate fuel economy and sets an annual gas mileage for cars. A company with a large fleet of cars hopes to meet the 2011 goal of 30.2 mpg or better for their fleet of cars. To...

On June 6, Southside Bank & Trust lent $90,000 to Samantha Michael on a 60-day, 6% note. Requirements 1. Journalize for Southside the lending of the money on June 6. 2. Journalize the collection of...

Suppose Johnson & Johnson and the Walgreen Company have the expected returns and volatilities shown below, with a correlation of 22%. For a portfolio that is equally invested in Johnson & Johnsons...

On August 1, 2019, the accountant for Western Imports downloaded the company's July 31, 2019, bank statement from the bank's website. The balance shown on the bank statement was $28,760. The July 31,...

Determine if the overhead allocated to the product relates to a single plantwide overhead rate method, multiple production department factory overhead rate method, or activity-based costing...

29. Let X1, X2, . . . , Xn be independent random variables having the common density function Find (a) E[Max(Xi , . . . , Xn)] and (b) E[Min(X1, . . . , Xn)]. f(x)= 1 0

24. An insurance company writes a policy to the effect that an amount of money A must be paid if some event E occurs within a year. If the company estimates that E will occur within a year with...

25. A total of 4 buses carrying 148 students from the same school arrive at a football stadium. The buses carry, respectively, 40, 33, 25, and 50 students. One of the students is randomly selected....