Results 1 to 2 of 2

Math Help - 3 Financial Mgt questions

  1. #1
    lariat1997
    Guest

    Question 3 Financial Mgt questions

    Hey all,

    This is my first time using this forum. It looks nice though. I hope I get some help with these questions, they have kept me up all night.

    #1. A highly risk-averse investor is considering the addition of an asset to a 10 stock portfolio. The two securities under consideration both have an expected return equal to 15%. However, the distribution of possible returns associated with Asset A has a standard deviation of 12%, while Asset B's standard deviation is 8%. Both assets are correlated with the market with r equal to 0.75. Which asset should the risk-averse investor add to their portfolio?

    #2 The risk-free rate of interest is 6%. The overall stock market has an expected return of 12%. Hazlett, Inc. has a beta of 1.2. What is the required return of Hazlett, Inc. stock?

    #3 Calculate the required rate of return for Mercury, Inc., assuming that investors expect a 5% rate of inflation in the future. The real risk-free rate is equal to 3% and the market risk premium is 5%. Mercury has a beta of 2.0, and its realized rate of return has averaged 15% over the last 5 years.


    Sorry for putting 3 questions, but I have been trying to help my son with his studying and I have not been able to solve these. It has been a long time since I have taken these classes.

    Any help would be greatly appreciated!
    Follow Math Help Forum on Facebook and Google+

  2. #2
    Newbie
    Joined
    Nov 2005
    Posts
    3

    Question 2

    If you use CAPM the expected return r will be

    r = 0.06 + 1.2*(0.12-0.06) = 0.06 + 0.072 = 0.132 i.e. 13.2%
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Need help with financial maths
    Posted in the Business Math Forum
    Replies: 3
    Last Post: July 3rd 2011, 08:06 PM
  2. Financial Problem
    Posted in the Business Math Forum
    Replies: 4
    Last Post: January 26th 2010, 09:30 AM
  3. financial mathematics
    Posted in the Business Math Forum
    Replies: 1
    Last Post: October 30th 2009, 06:23 AM
  4. Financial accounting questions
    Posted in the Business Math Forum
    Replies: 0
    Last Post: March 23rd 2009, 06:36 PM
  5. Financial Mathematics
    Posted in the Business Math Forum
    Replies: 0
    Last Post: December 9th 2008, 12:27 PM

Search Tags


/mathhelpforum @mathhelpforum