Question

Bartman Industries's and Reynolds Inc.'s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 2015–2020. The Winslow 5000 data are adjusted to include dividends.

Bartman Industries

Reynolds Inc.

Winslow 5000

Year

Stock Price

Dividend

Stock Price

Dividend

Includes Dividends

2020

$16.95

$1.15

$50.50

$2.90

$12,324.64

2019

14.30

1.06

53.75

2.80

9,133.05

2018

16.10

1.00

50.50

2.65

9,022.59

2017

10.55

0.95

58.70

2.35

6,582.21

2016

10.97

0.90

62.15

2.10

5,773.46

2015

7.52

0.85

57.20

1.85

4,800.88

Assume the risk-free rate during this time was 2%. Calculate the Sharpe ratios for Bartman, Reynolds, and the Index over this period using their average returns. Round your answers to four decimal places.

	Bartman Industries		Reynolds Inc.		Winslow 5000
Sharpe ratio

Estimate Bartman's and Reynolds's betas by running regressions of their returns against the index's returns. Round your answers to four decimal places.

Bartman's beta: _______________

Reynolds's beta: ______________

Assume that the risk-free rate on long-term Treasury bonds is 4.5%. Assume also that the average annual return on the Winslow 5000 is not a good estimate of the market's required return—it is too high. So use 10% as the expected return on the market. Use the SML equation to calculate the two companies' required returns. Round your answers to two decimal places.

Bartman's required return: ____________ %

Reynolds's required return: ___________ %

If you formed a portfolio that consisted of 50% Bartman and 50% Reynolds, what would the portfolio's beta and required return be? Round your answer for the portfolio's beta to four decimal places and for the portfolio's required return to two decimal places.

Portfolio's beta: ______________

Portfolio's required return: _____________ %

Suppose an investor wants to include Bartman Industries's stock in his portfolio. Stocks A, B, and C are currently in the portfolio, and their betas are 0.825, 0.914, and 1.403, respectively. Calculate the new portfolio's required return if it consists of 30% of Bartman, 10% of Stock A, 35% of Stock B, and 25% of Stock C. Round your answer to two decimal places.

______________ %