Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337395250
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 8, Problem 7P
Summary Introduction
To determine: The fund’s required
The Required Rate of Return:
The required rate of return is the rate which should be the minimum earned on an investment to keep that investment running in the market. When the required return is earned only then the users and the companies invest in that particular investment.
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Please answer ALL OF QUESTIONS 1 AND 2
1. Suppose you are the money manager of a $4.95 million investment fund. The fund consists of four stocks with the following investments and betas:
Stock
Investment
Beta
A
$ 280,000
1.50
B
460,000
(0.50)
C
1,260,000
1.25
D
2,950,000
0.75
If the market's required rate of return is 8% and the risk-free rate is 4%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.
2. Madsen Motors's bonds have 13 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 10%; and the yield to maturity is 5%. What is the bond's current market price? Round your answer to the nearest cent.
PORTFOLIO REQUIRED RETURN Suppose you are the money manager of a $4.82 million investment fund. The fund consists of four stocks with the following investments and betas:If the market’s required rate of return is 8% and the risk-free rate is 4%, what is the fund’s required rate of return?
Chapter 8 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 8 - Prob. 1QCh. 8 - Prob. 2QCh. 8 - Prob. 3QCh. 8 - Is it possible to construct a portfolio of...Ch. 8 - Stock A has an expected return of 7%, a standard...Ch. 8 - A stock had a 12% return last year, a year when...Ch. 8 - If investors aversion to risk increased, would the...Ch. 8 - Prob. 8QCh. 8 - In Chapter 7, we saw that if the market interest...Ch. 8 - Prob. 10Q
Ch. 8 - Prob. 11QCh. 8 - EXPECTED RETURN A stocks returns have the...Ch. 8 - PORTFOLIO BETA An individual has 20,000 invested...Ch. 8 - REQUIRED RATE OF RETURN Assume that the risk-free...Ch. 8 - Prob. 4PCh. 8 - BETA AND REQUIRED RATE OF RETURN A stock has a...Ch. 8 - EXPECTED RETURNS Stocks A and B have the following...Ch. 8 - Prob. 7PCh. 8 - BETA COEFFICIENT Given the following; information,...Ch. 8 - REQUIRED RATE OF RETURN Stock R has a beta of 2.0,...Ch. 8 - Prob. 10PCh. 8 - CAPM AND REQUIRED RETURN Calculate the required...Ch. 8 - REQUIRED RATE OF RETURN Suppose rRF = 4%, rM =...Ch. 8 - CAPM, PORTFOLIO RISK, AND RETURN Consider the...Ch. 8 - PORTFOLIO BETA Suppose you held a diversified...Ch. 8 - CAPM AND REQUIRED RETURN HR Industries (HRI) has a...Ch. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - EXPECTED RETURNS Suppose you won the lottery and...Ch. 8 - EVALUATING RISK AND RETURN Stock X has a 10%...Ch. 8 - REALIZED RATES OF RETURN Stocks A and B have the...Ch. 8 - SECURITY MARKET LINE You plan to invest in the...Ch. 8 - Prob. 22SPCh. 8 - Prob. 23ICCh. 8 - Prob. 1TCLCh. 8 - Prob. 2TCLCh. 8 - Prob. 3TCLCh. 8 - Using Past Information to Estimate Required...Ch. 8 - Prob. 5TCLCh. 8 - Prob. 6TCLCh. 8 - Prob. 7TCLCh. 8 - Prob. 8TCL
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- Portfolio Required Return Suppose you manage a $4.4 million fund that consists of four stocks with the following investments: Stock Investment Beta A $500,000 1.50 B 650,000 -0.50 C 1,100,000 1.25 D 2,150,000 0.75 If the market's required rate of return is 8% and the risk-free rate is 3%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %arrow_forwardAssume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 2.00%. What rate of return should investors expect (and require) on this fund? A. 11.25% B. 10.57% C. 10.80% D. 10.69% E.10.35%arrow_forwardSuppose you manage a $5 million fund that consists of four stocks with the following investments: Stock Investment Beta A $250,000 1.50 B 750,000 -0.50 C 1,250,000 1.25 D 2,750,000 0.75 If the market's required rate of return is 9% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %arrow_forward
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