Subject: FInancial strategy & policy Question # 2 (part ii) ii) You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment Stock’s Beta Coefficient A $160 million 0.5 B 120 million 1.2 C 80 million 1.8 D 80 million 1.0 E 60 million 1.6 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: Probability Market Return 0.1 28% 0.2 0 0.4 12 0.2 30 0.1 50 a) What is the equation for the Security Market Line (SML)? b) Calculate Kish’s required rate of return.
Subject: FInancial strategy & policy
Question # 2 (part ii)
ii) You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks:
Stock Investment Stock’s Beta Coefficient
A $160 million 0.5
B 120 million 1.2
C 80 million 1.8
D 80 million 1.0
E 60 million 1.6
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:
Probability Market Return
0.1 28%
0.2 0
0.4 12
0.2 30
0.1 50
a) What is the equation for the Security Market Line (SML)?
b) Calculate Kish’s required
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
