On December 1, 2008, Secure Company bought a 90-day forward contract to purchase 200,000 euros (€) at a forward rate of €1 = $1.
35 when the spot rate was $1.33. Other exchange rates were as follows: Spot Forward Rate for Rate March 1, 2009 December 31, 2008 $ 1.34 $ 1.36 March 1, 2009 1.33 Required: 1. Prepare all journal entries related to Secure Company's foreign currency speculation from December 1, 2008, through March 1, 2009, assuming the fiscal year ends on December 31, 2008. 2. 2. Did the company gain or lose on its purchase of the forward contract?
1 answer:
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Answer:
11.11%
Explanation:
<em><u>The full question with table is attached.</u></em>
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We need the rate of return formula using Capital Asset Pricing Model (CAPM). The formula is:
Where
R is rate of return (what we need)
is risk-free return rate (5% = 0.05)
is the market rate of return (11% = 0.11)
To get , we take the weighted average of the portfolio.
Weight of Stock A = 1,075,000/3,000,000 = 0.3583
Weight of Stock B = 675,000/3,000,000 = 0.225
Weight of Stock C = 750,000/3,000,000 = 0.25
Weight of Stock D = 500,000/3,000,000 = 0.1667
Portfolio Beta = (0.3583*1.2) + (0.225*0.50) + (0.25*1.40) + (0.1667*0.75) = 1.02
Now, we calculate rate of return using CAPM formula:
That is 11.12%, or from answer choice, it is <u>11.11%</u>
