Risk, Return, and the Capital Asset Pricing Model On your first day as an intern at Tri-Star
Question:
Risk, Return, and the Capital Asset Pricing Model
On your first day as an intern at Tri-Star Management Pty Ltd the CEO asks you to analyze the following information pertaining to two ordinary share investments, Tech.com and Sam’s Grocery. You are told that a one-year Treasury note will have a rate of return of 5% over the next year. Also, information from an investment advisory service lists the current beta for Tech.com as 1.68 and for Sam’s Grocery as 0.52. You are provided with a series of questions to guide your analysis.
Based on the beta provided, what is the expected rate of return for Tech.com and Sam’s Grocery for the next year?
2. If you form a two-share portfolio by investing $30,000 in Tech.com and $70,000 in Sam’s Grocery, what is the portfolio beta and expected rate of return?
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart