Question

In: Finance

Ahmed Fadhili has decided to invest 1 million dollars by purchasing shares of two companies namely;...

Ahmed Fadhili has decided to invest 1 million dollars by purchasing shares of two companies namely; ABC Ltd and XYZ Ltd. The projections of returns from the shares of the two companies along with their probabilities are as follows

Probability.      Returns(ABC).       Returns(XYZ)
0.20                     12%.                          16%
0.25.                    14%.                          10%
0.25.                     -7%.                           28%
0.30.                     28%.                           -2%

Required
The proportion of each of the above shares required to formulate the MINIMUM RISK PORTFOLIO

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Your uncle has recently retired with two million dollars of superannuation funds. He wants to invest...
Your uncle has recently retired with two million dollars of superannuation funds. He wants to invest a part of his super fund to fixed income securities, preferably foreign government bonds. He found Germany Government bonds offering YTM of 3% whereas Greece Government bonds offering YTM of 5%. He got confused with two different rates since both of them are risk-free government bonds. Explain your uncle the underlying cause of 2% differences in YTM between these two Government bonds. Assume your...
Your uncle has recently retired with two million dollars of superannuation funds. He wants to invest...
Your uncle has recently retired with two million dollars of superannuation funds. He wants to invest a part of his super fund to fixed income securities, preferably foreign government bonds. He found Germany Government bonds offering YTM of 3% whereas Greece Government bonds offering YTM of 5%. He got confused with two different rates since both of them are risk-free government bonds. Explain your uncle the underlying cause of 2% differences in YTM between these two Government bonds. Assume your...
You have $60 and have decided to invest it in the stocks of two companies: Google...
You have $60 and have decided to invest it in the stocks of two companies: Google and Bing. The stock of Google cost $10/share and Bing stock costs $5/share. In one scenario, Google stock will be worth $30 and Bing will be worth $8. In the only other scenario, which is equally likely, Google will be worth $10/share Bing will be worth $12/share. Assuming you are risk averse, which of the following investment options yield the greatest expected utility? (a)...
TacosRus has decided to raise $6.665 million in the capital by issuing 500,000 new shares of...
TacosRus has decided to raise $6.665 million in the capital by issuing 500,000 new shares of common stock in a rights offering. Currently, there are 1.5 million shares outstanding. What will each current shareholder have to provide to purchase one share of this new offering?
Ahmed has to take a decision to invest in either STC Stock or Zain Stock. For...
Ahmed has to take a decision to invest in either STC Stock or Zain Stock. For the STC Stock, The dividend distributed this year is 2 SR and it will grow at a constant rate (5%) and will continue for an infinite period. For Zain Stock, the dividend always stays the same, 3 SR for every year. The relative risk with the market for each stock (Beta) is given in the following table: Beta STC Stock 0.75 Zain Stock 1.25...
Google currently has a 5 million common shares outstanding, and a 1 million preferred shares outstanding,...
Google currently has a 5 million common shares outstanding, and a 1 million preferred shares outstanding, and 100,000 bonds outstanding. Calculate Google Weighted Average Cost of Capital (WACC) if the corporate tax rate is 35%. (Using excel and making formulas viewable) The average cost of equity of Google is 19.04%. The cost of Google’s preferred stocks if it is currently priced at $100 is 6%. The pre-tax cost of debt of Google is 6.85%.​​​​​​​
ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock,...
ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock, and 20,000   4.5% semiannual bonds outstanding. The common stock has a beta of 1.2. The corporate bond has a par value of $1,000 each and matures in 21 years. Currently the bonds are selling at 104% of their face values. The market risk premium is 10%. The risk-free rate is 2.5%. The common stock sells for $75 per share. The preferred stock sells for...
Anderson Corporation has 1 million shares of common stock outstanding, 1/2 million shares of preferred stock,...
Anderson Corporation has 1 million shares of common stock outstanding, 1/2 million shares of preferred stock, and 20,000 3.5% semiannual bonds outstanding. The common stock has a beta of 1.2. The corporate bond has a par value of $1,000 each and matures in 14 years. Currently the bonds are selling at 94% of their face values. The market risk premium is 9%. The risk-free rate is 3%. The common stock sells for $40 per share. The preferred stock sells for...
Companies X and Y have been offered the following rates per annum on 1 million dollars...
Companies X and Y have been offered the following rates per annum on 1 million dollars of investments: Company Fixed Rate (in percent) Floating Rate (in percent) X 4.32% Libor + 0.5 Y 5.54% Libor + 0.6 Company X requires a fixed rate investment and company Y requires a floating rate investment. Design a swap that will net a bank acting as a financial intermediary (F.I.) 30 percent of the benefits and be equally attractive to both the companies. Draw...
Chloe plans to invest some of her savings into two blue-chip stocks, namely Stock A and...
Chloe plans to invest some of her savings into two blue-chip stocks, namely Stock A and Stock B. Suppose that the mean and standard deviation of the annual return of Stock A are 5% and 5%, respectively, and the mean and standard deviation for the annual return of Stock B are 10% and 10%, respectively. In this investment portfolio, Chloe will put 50% of her money into Stock A and 50% of her money into Stock B. (i) [3 marks]...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT