Question

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7:12 Instagram Done 4 of 13 PARTPRORF REPORT THE NUMERICAL VALUES AND SYM ANSWER EACH ONESTION WITHIN THE SPACE PROVIDED NSWER FACHOLESTI IDENTIFY THE OUTPUT VARLARLE ALTERNAL UMRICAL VALUES AND S ONS OF THE INPUT VARIABLES AND OLIPUT VARLARE TENATIVELY IDENTIFY THE FINANCIAL BRING SOLVED IN A NSWERBOLIRED AND SHOULD DISPLAY TWO DECIMAL PLACES o purchased Thares of b e tere were all option prosentine Thara a n price of The option was exercised piration by the buyer when Stock A was trading at a price of $45. Calculateur profit or los 100 101 pop - 100x143284,500 6100 x yu=400 2. A bond has an annual coupon of a par value of $1.000, a current price of $1,025, and matures in 10 years Calculate the yield to maturity yooox,06260 5.60 -5.7 - pv -yo25 3. Mutual Fund X holds four stocks (A, B, C, D). Stock A has a value of $200,000 and a beta of 1.50. Stock Bhas a value of $300,000 and a beta of -0.50. Stock C has a value of $500,000 and a beta of 1.25. Stock D has a value of $1,000,000 and a beta of 0.75, The market's required rate of return is 13.25% and the risk-free rate is 7.00%. Calculate the required rate of return for Mutual Fund X liz (13237.00 = .0625 6.23 xlison 9.373 625x11252106 BB123 -8 6.25 X 0.75 -38525 7.2 se is (perrez anorer

Answer 1

1). Loss on each share = share price at expiration - exercise price = 45-40 = 5 per share

So, total loss = (number of shares*-5) + option premium = -500 + 4 = -496

2). FV = 1,000; PV = -1,025; PMT = 6%*FV = 6%*1,000 = 60; N = 10, solve for RATE. YTM = 5.67%

3). Fund X beta = sum of weighted betas

Formula		I/Total		w*b
Stock	Investment (I)	Weight (w)	Beta (b)
A	200000	10.0%	1.5	0.15
B	300000	15.0%	-0.5	-0.075
C	500000	25.0%	1.25	0.3125
D	1000000	50.0%	0.75	0.375
Total	2000000	100.0%		0.7625

Fund X beta = 0.7625

Using CAPM, required return = risk-free rate + beta*(market return - risk-free rate)

= 7% + 0.7625*(13.25%-7%) = 11.77%