You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested


You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks:

Investment $160 million 120 million 80 million 80 million 60 million Stock's Beta Coefficient 0.5 1.2 1.8 1.0 1.6 Stock

Kish’s beta coefficient can be found as a weighted average of its stocks’ betas. The risk-free rate is 6%, and you believe the following probability distribution for future market returns is realistic:

a. What is the equation for the Security Market Line (SML)?

b. Calculate Kish’s required rate of return.

c. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 15%, and its estimated beta is 1.5. Should Kish invest in the new company? At what expected rate of return should Kish be indifferent to purchasing the stock?

The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...
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Related Book For  answer-question

Fundamentals of Financial Management

ISBN: 978-0324664553

Concise 6th Edition

Authors: Eugene F. Brigham, Joel F. Houston

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