Question

Asume that you are the portfolio manager of the SF Find, 3 million hedge fund that untains the following stocks. The resindate ofretum on the market is 1100 und the risk-free rate is 5.00 Watterturm investos expect and require on this fund? Stock Amount $1,075,000 675,000 750,000 500.000 $3.000.000 1.20 0.50 1.40 0.75 10.5096 TO e 1 9.II 1.50. g (which is constant)- 6.5%, and o capital gains yield for the coming year? u t the stock's expected 6.50 b683 G717 d752 e 7.00 10. Astock just paid a dividend the constant growth rate is DO 40 50. The required rate of return is What is the current stock price? 10.1% and S2311 b. 523 70 $24.31 d. 52493 e $25.57 11. DO -52.25. (which is constant) - 3.5% and dividend yield for the coming year? 550, what is the stocks expected 4429 4.60 49 SC X

Answer 1

Answer to Question 8:

Weight of Stock A = $1,075,000 / $3,000,000
Weight of Stock A = 0.3583

Weight of Stock B = $675,000 / $3,000,000
Weight of Stock B = 0.2250

Weight of Stock C = $750,000 / $3,000,000
Weight of Stock C = 0.2500

Weight of Stock D = $500,000 / $3,000,000
Weight of Stock D = 0.1667

Portfolio Beta = Weight of Stock A * Beta of Stock A + Weight of Stock B * Beta of Stock B + Weight of Stock C * Beta of Stock C + Weight of Stock D * Beta of Stock D
Portfolio Beta = 0.3583 * 1.20 + 0.2250 * 0.50 + 0.2500 * 1.40 + 0.1667 * 0.75
Portfolio Beta = 1.0175

Portfolio Required Return = Risk-free Rate + Portfolio Beta * (Rate of Return of Market - Risk-free Rate)
Portfolio Required Return = 5.00% + 1.0175 * (11.00% - 5.00%)
Portfolio Required Return = 11.11%

Answer to Question 9:

Dividend Yield = D1 / P0
Dividend Yield = $1.50 / $56.00
Dividend Yield = 0.0268 or 2.68%

Required Return = D1 / P0 + g
Required Return = $1.50 / $56.00 + 0.0650
Required Return = 0.0918 or 9.18%

Capital Gain Yield = Required Return - Dividend Yield
Capital Gain Yield = 9.18% - 2.68%
Capital Gain Yield = 6.50%

Answer to Question 10:

D1 = D0 * (1 + g)
D1 = $1.50 * 1.04
D1 = $1.56

Current Stock Price = D1 / (rs - g)
Current Stock Price = $1.56 / (0.101 - 0.04)
Current Stock Price = $25.57

Answer to Question 11:

D1 = D0 * (1 + g)
D1 = $2.25 * 1.035
D1 = $2.32875

Dividend Yield = D1 / P0
Dividend Yield = $2.32875 / $50.00
Dividend Yield = 0.0466 or 4.66%