1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Alex73 [517]
3 years ago
13

Week 5 Rachel is a financial investor who actively buys and sells in the securities market. Now she has a portfolio of all blue

chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and $5,500 of Share D. Required:
a) Compute the weights of the assets in Rachel’s portfolio? (2 marks)
b) If Rachel’s portfolio has provided her with returns of 9.7%, 12.4%, -5.5% and 17.2% over the past four years, respectively, calculate the geometric average return of the portfolio for this period. (2 marks)
c) Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflation rate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Model (CAPM). (2 marks)
i need onlu part d)
d) Following is forecast for economic situation and Rachel’s portfolio returns next year, calculate the expected return, variance, and standard deviation of the portfolio. (4 marks)


Required: step by step explanation with formula please
Business
1 answer:
Ivahew [28]3 years ago
4 0

Answer: The answer is provided below

Explanation:

The weights of assest in Rachel's portfolio: = amount in each stock ÷ sum of the amounts invested in all stocks.

Share Amount Weight

A. 13500. 0.33

B. 7600. 0.18

C. 14700. 0.36

D. 5500. 0.13

Total 41300

Note that weight = amount/total

Geometric average return of a portfolio:

((1+R1)×(1+R2)×(1+R3)....×(1+Rn))^(1/n) - 1

where,

R1= return of period 1

Rn= return in nth period

Hence, the geometric average return of Rachel's portfolio will be:

((1+9.7%)×(1+12.4%)×(1-5.5%)×(1+17.2%))^(1/4) - 1

= 8.10 % (approximately) per year.

Using the nominal rate of return which includes inflation:

CAPM: Required return will be:

= Risk free return + (Risk premium × Beta)

13.6 = Risk free return + (4.8 × 1.5)

13.6 = Risk free return + 7.2

Risk free return = 13.6 - 7.2

= 6.4% which is not inflation adjusted)

The inflation adjusted rate of return will be:

= (1+return)/(1+inflation rate))-1

= ((1+13.6%)/(1+2.7%))-1

= 10.61%

Using CAPM:

10.61= Risk free return + (4.8 × 1.5)

10.61 = Risk free return + 7.2

Risk free return = 10.61 - 7.2

Risk free return = 3.41% (at real rates)

In practice, the use of inflation adjusted return i.e the real rate of return which is 10.61% is better as it puts forth a long term perspective on how a stock is performing.

You might be interested in
If sales are $540,000, expenses are $440,000 and dividends are $50,000, what is the balance of income Summary prior to closing?
alexandr402 [8]

Answer:

d. It will have a credit balance of $100,000.

Explanation:

In the income statement, the total revenues and the total expenses are recorded.  

If the total revenues are more than the total expenditure then the company earns net income

And, If the total revenues are less than the total expenditure then the company have a net loss

This net income or net loss would reflect in the statement of the retained earning account.

So, the balance of income summary equals to

= Sales - expenses

= $540,000 - $440,000

= $100,000

The dividend should be deducted from the retained earning account. Hence, it will not be consider here

7 0
3 years ago
The truth in lending act is contained in title of I of the:
densk [106]

Answer:

truth of lending act

Explanation:

laid the foundation for consumer protection

6 0
3 years ago
Broker Burns is negotiating a first trust deed loan for buyers. The buyers have signed a contract for a fifteen year loan. What
Harrizon [31]

Answer:

The answer is 2. Ten percent of the principal of the loan

Explanation:

By law, maximum commissions for first trust deed loans are at :

- 5% of the principal for loans less than 2 years or less than 3 years

- 10% of the principal for loans 3years and more.

Second trust deed loans, on the other hand, are stated at 5% for loans up to 2years, 10% for loans between 2-3 years and 15% for loans more than 3 years.

8 0
3 years ago
The following labor standards have been established for a particular product:Standard labor-hours per unit of output 9.0hoursSta
harkovskaia [24]

Answer:

Direct labor rate variance= $69,579 unfavorable

Explanation:

Giving the following information:

Standard labor-hours per unit of output 9.0 hours

Standard labor rate= $15.10 per hour

Actual hours worked= 8,100 hours

Actual total labor cost= $191,880

To calculate the direct labor rate variance, we need to use the following formula:

Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity

Actual rate= 191,880/8,100= $23.69 per hour

Direct labor rate variance= (15.10 - 23.69)*8,100

Direct labor rate variance= $69,579 unfavorable

3 0
3 years ago
he following information relates to the manufacturing operations of the Abbra Publishing Company for the year: Beginning Ending
Serhud [2]

Answer:

Purchases= $1,091,000

Explanation:

Giving the following information:

Beginning Raw materials inventory = $549,000

Ending Raw materials inventory= $612,000

The raw materials used in production= $1,028,000.

<u>To calculate the raw material purchased, we need to use the following formula:</u>

Purchases= production + ending inventory - beginning inventory

Purchases= 1,028,000 + 612,000 - 549,000

Purchases= $1,091,000

4 0
3 years ago
Other questions:
  • Ads sent via email must be designated as advertisements.<br> 1. True<br> 3. False
    10·1 answer
  • _________ are variables that managers must understand since they can significantly affect the overall competitive position of a
    10·1 answer
  • It is Micah's role at the company to plan, organize, and control the functions within the human resource department. Based on th
    15·1 answer
  • Which of the following is a true statement about the call option? It allows investors to purchase stocks at a going rate for a g
    10·2 answers
  • The customer is covered by a company defined benefit plan that will pay about $40,000 per year upon retirement at age 70. This c
    7·1 answer
  • ACS Industries is considering a project with an initial cost of $6.2 million. The project will produce cash inflows of $1.8 mill
    13·1 answer
  • If you want to target specific people in a country or city, what segmentation you will<br> use?
    12·1 answer
  • following the rational rule for sellers, how does output for a seller who has market power compare to output for a seller who do
    5·1 answer
  • True or False: Market segmentation is the process of dividing the market into groups of customers based on their needs, wants, a
    12·1 answer
  • in the long run, the representative firm in monopolistic competition tends to have multiple choice excess capacity. economic pro
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!