Question

In: Finance

You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...

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 0.7
B 120 million 1.5
C 80 million 2.3
D 80 million 1.0
E 60 million 1.4

Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 3%, and you believe the following probability distribution for future market returns is realistic:

Probability Market Return
0.1 -29 %
0.2 0
0.4 14
0.2 31
0.1 47
  1. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.)
    1. ri = 4.4% + (10.5%)bi
    2. ri = 3.0% + (10.6%)bi
    3. ri = 7.0% + (10.2%)bi
    4. ri = 3.0% + (10.5%)bi
    5. ri = 4.4% + (10.6%)bi

    -Select-IIIIIIIVVItem 1

  2. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places.

      %

  3. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 15%, and its estimated beta is 1.4. Should Kish invest in the new company?

    The new stock -Select-should notshouldItem 3 be purchased.

    At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places.

      %

Solutions

Expert Solution


Related Solutions

You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.4 B 120 million 1.1 C 80 million 2.2 D 80 million 1.0 E 60 million 1.5 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 3%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.7 B 120 million 1.3 C 80 million 2.1 D 80 million 1.0 E 60 million 1.7 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 3%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.6 B 120 million 1.2 C 80 million 2.1 D 80 million 1.0 E 60 million 1.9 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 4%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.7 B 120 million 1.1 C 80 million 1.9 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 5%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.3 B 120 million 2.1 C 80 million 3.8 D 80 million 1.0 E 60 million 3.4 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 5%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 1.4 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 5%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.7 B 120 million 1.5 C 80 million 2.2 D 80 million 1.0 E 60 million 1.7 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 3%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.7 B 120 million 1.2 C 80 million 1.7 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...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.4 B 120 million 1.6 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...
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million...
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 0.8 B 120 million 1.5 C 80 million 2.2 D 80 million 1.0 E 60 million 1.5 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 6%, and you believe th following probability distribution for future market returns is realistic: Probability Market Return...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT