1.(Systemic Risk and Expected Rate of Return) Calculate the expected increase in the value of each firm’s shares if the market portfolio were to increase by 10%. Perform the same calculation where the market drops by 10%.
Company Beta Estimate Expected Increase
Computer Firms
A 2.68 %(round 2 decimal places)
B 1.45 %
C 1.32 %
Utility Firms
D 0.72 %
E 0.37 %
F 0.82 %
Company Beta Estimate Expected Decrease
Computer Firms
A 2.68 %(round 2 decimal places)
B 1.45 %
C 1.32 %
Utility Firms
D 0.72 %
E 0.37 %
F 0.82 %
Which set of firms has the most volatile stock returns Computer or Utilities?
2.(Annuity Payments)Bill purchased a house for $70,000. He put $25,000 down and agreed to pay the rest off over the next 15 years in 15 equal payments that include principal payments plus 12% compound interest on the unpaid balance. What will these equal payments be?
a) How much does he need to borrow. (Should be $45,000)
b) How much will the 15 equal payments be? Round to nearest cent.
3.(Calculating Rates of Return) On December 24, 2007, the S&P 500 index was 1,410 and on December 24, 2008, the index was 860. If the average dividend paid on the stocks in the index is 4% of the value of the index at the beginning of the year, what is the rate of return earned on the S&P index?
4. Portfolio Beta and Capital Asset Pricing Model(CAPM).
Asset Beta First Portfoli Second Portfolio
A 2.40 20% 30%
B 0.90 20% 30%
C 0.60 30% 20%
D -1.60 30% 20%
a.)What is the beta for each portfolio?( I have 0.36 for First and 0.79 for Second)
b.) If the risk free rate on interest were 4.5% and the market risk premium were 7.5%, what rate of return would you expect to earn from each portfolio?