Case Studay

F) Plot the attainable portfolios with Expected return on the y-axis and Risk on the X-axis. Be sure

Directions: Using word processing software to save and submit your work, please answer the following short answer questions. All responses to questions should be one to two paragraphs, composed of five to seven sentences, in length. Your responses should include examples from the reading assignments.

You recently purchased a stock that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy. There is a 15% probability of a boom, a 75% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock?

Decision Making Area 3:Investment Decisions * Table of Articles * Summary of Articles * Observations * Conclusion

Problem 1: Jonathon Barrs is a manager for Easy Manufacturing, LLC. He wishes to evaluate three possible investments. These investments are for the purchase of new machine tools from Germany, Japan, and a local US manufacturer. The firm earns 10% on its investments and they have a risk index of 5%. The chart below lays out the expected return and expected risks of the three projects.

a) In the first set of calculations, the staff used a discount rate of 20%, a five-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives?

This practice exam covers a selection of the types of questions that may be asked in the

2. St. Luke’s Convalescent Center has $200,000 in surplus funds that it wishes to invest in marketable securities. If transaction costs to buy and sell the securities are $2,200 and the securities will be held for three months, what required annual yield must be earned before the investment makes economic sense?

a. It is any type of investment where the investor’s maximum possible loss is the amount invested

(See all the possible combinations on TABLE 2). 6. a) The portfolio’s risk would decrease if more stocks were.

e. Suppose you created a two-stock portfolio by investing $50,000 in High Tech and $50,000 in Collections.

Assessing the likelihood of each option and assigning weight to each possibility is an inexact science, but I believe it in unlikely that in the current political climate we will not see both a reduction in the tax rate and an increase in the length of time over which we are required to depreciate capital assets. I have assigned weights to each option with this in mind, and have come up with an average weighted estimate of the net present value of the investment of: $1.7 million.

In this assignment you will demonstrate your understanding of capital investment techniques by evaluating the following three case studies.

5. With respect to b), what would be the effect of the bondization and equitization overlay program on the expected return of the absolute return portfolio? Which contracts would be the most

The portfolio which combines 50% investment in stock A and 50% investment in stock C generates an expected return of 11.5% and beta of 1.05. The combination on investment between T-Bill and stock C that will be superior to the previous portfolio is: