Assignment for Fin 4320
Here are data on two companies. The T-Bill rate is 4% and the market risk premium is 6%
CompanyVictoria StoreHouston Store
Forecasted return 12 % 11 %
Standard Deviation of Returns 8 % 10 %
Beta 1.5 1.0
a. Estimate the expected return for each company according to CAPM
b. Characterize each company as underpriced, overpriced, or properly priced according to CAPM
c. Another company, Sugar Land store, has a beta of 2.0. Assuming efficient market hypothesis
(CAPM holds), estimate the expected rate of return for a portfolio consisting of 1/3 Victoria
stock, 1/3 Houston stock, and 1/3 Sugar Land store.
You are the financial adviser to three individuals, a Young person with high risk tolerance, a Middle
aged person with medium risk tolerance and an old person with low risk tolerance. Here are the current
Risk free asset is earning 12 % per year.
Risky asset (or market portfolio) has expected return of 30% per year and standard deviation of 40%.
Using the mutual fund theorem or Separation theorem
a. Construct an appropriate portfolio (Mix of risky asset and risk free asset)for your young client
and estimate the expected return and standard deviation of your young client for the coming year.
b. Construct an appropriate portfolio for your middle aged client and estimate the expected return
and standard deviation of your middle aged client.
c. Construct an appropriate portfolio for your old client and estimate the expected return and
standard deviation of your old client.
d. If your middle aged client requires a portfolio with a standard deviation of 30%, what is its
expected rate of return?
Sugar Land Co. is a fast growing firm and no dividend will be paid on the stock over the next 9
years. The company then will pay a $12 dividend per share in year 10 and will increase the
dividend by 5 percent forever. If the required rate of return for this stock is 13 %, what should
be the intrinsic value of Sugar Land Co.?
Victoria bond is a premium bond with 8% coupon. Houston bond is a 4 % coupon bond currently
selling at a discount. Both bonds make annual payments and have a yield to maturity (YTM) of
6%, and have 5 years till maturity.
a. Estimate their prices (Bond prices).
b. Estimate their current yields
c. If interest rates remain unchanged by next year, estimate their prices a year from now.
d. Estimate their first year capital gain yields. Hint: CGY = (P1-P0)/P0
Why Work with Us
Top Quality and Well-Researched Papers
We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.
Professional and Experienced Academic Writers
We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.
Free Unlimited Revisions
If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.
Prompt Delivery and 100% Money-Back-Guarantee
All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.
Original & Confidential
We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.
24/7 Customer Support
Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.
No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.
Admission Essays & Business Writing Help
An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.
Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.
If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.