Last Updated 02 Sep 2020

# Investments Homeword

Words 384 (2 pages)
Views 341

## MGT 6080 Investments

Homework 1 Note: Due time/date for this homework is 4:30pm on February 5. Please make online submission at T-square. 0. Today you bought 100 shares of ABC Inc. at \$100 per share. A year from now ABC will pay a dividend of \$2 per share for sure. The price of ABC a year from now is uncertain and depends on the state of the economy. A year from now the economy will either be in a recession, a state of “normal” growth, or a boom with probabilities of 30%, 40%, and 30% respectively.

After analyzing ABC you determine that the price of ABC a year from now in these various states of the economy will be: State of the Economy Recession Normal Growth Boom Price of ABC \$80 \$110 \$130 What is the expected return over the next year to your investment in ABC? What is the standard deviation of that return?

Order custom essay Investments Homeword with free plagiarism report

GET ORIGINAL PAPER

You are considering buying equity in a firm. If you purchase the equity, in one year you will receive \$1. 5 million with 40% probability and \$1. 2 million with 60% probability. Currently the yield on one year T-bills is 4%. Suppose that you require a risk premium of 10% to invest in the equity of this firm.

• In other words, your minimum required return on this investment is 14%.
• What is the most you would be willing to pay for the equity?
• If you pay this, what is the expected rate of return on your investment?

Based on your examination of the historical record, you calculate that the expected return on the S&P500 over the next year is 6% over T-bills with a standard deviation of 15%. Currently a T-bill with one year to maturity and face value of \$10,000 is selling for \$9,615.

You have \$1 million to invest and you will put all of your money in some combination of the S&P500 and one-year T-bills. Calculate the expected return and standard deviation of that return for 3 different portfolios. (a) Portfolio #1 is invested 100% in the S&P500. (b) Portfolio #2 is invested 50% in the S&P500. (c) Portfolio #3 is invested 10% in the S&P500.

Do the following recommended problems. (You don’t have to submit the solution for this part. ) End of chapter problem sets in your textbook, Investments by BKM Chapter 2: Chapter 3: 6, 9, 11 9, 16, 17

This essay was written by a fellow student. You can use it as an example when writing your own essay or use it as a source, but you need cite it.

## Get professional help and free up your time for more important courses

Starting from 3 hours delivery 450+ experts on 30 subjects
get essay help 124  experts online

Did you know that we have over 70,000 essays on 3,000 topics in our database?

Explore how the human body functions as one unit in harmony in order to life