The attached file contains hypothetical data for working this problem. Goodman Corporation’s and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown in the file. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends.If you formed a portfolio that consisted of 60% Goodman stock and 40% Landry stock, what would be its beta and its required return? AEF108 f. If you formed a portfolio that consisted of 60% Goodman stock and 40% Landry stock, what would be its109 beta and its required return?110111 The beta of a portfolio is simply a weighted average of the betas of the stocks in the portfolio, so this portfolio's beta112 would be:113114 Portfolio beta =115 ACDF12 a. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and thencalculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtractingthe beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital5 gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in theindex. Also, you cannot calculate the rate of return for 2015 because you do not have 2014 data.)478Data as given in the problem are shown below:9.Goodman IndustriesLandry IncorporatedMarket Index10YearStock PriceDividendStock PriceDividend Includes Divs.$30.32$2.23$2.65$2.73$2.57$2.23$2.25$85.12$79.32$74.32$87.12$95.12$84.25$3.52$3.65$3.45$3.47$3.55$3.2511202018,475.9712,174.5512,019.9710,743.059,455.428,163.962019$23.53$28.61$15.21$12.63$13.21121320181420171520161620151718 We now calculate the rates of retun for the two companies and the index:1920GoodmanLandryIndex2120202220192320182420172520162627 Average2829 Note: To get the average, you could get the column sum and divide by 5, but you could also use the function30 wizard, fx. Click fx, then statistical, then Average, and then use the mouse to select the proper range. Do this for31 Goodman and then copy the cell for the other items.32

Answered: The attached file contains hypothetical…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 17P

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The attached file contains hypothetical data for working this problem. Goodman Corporation’s and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown in the file. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends.

If you formed a portfolio that consisted of 60% Goodman stock and 40% Landry stock, what would be its beta and its required return?

A
E
F
108 f. If you formed a portfolio that consisted of 60% Goodman stock and 40% Landry stock, what would be its
109 beta and its required return?
110
111 The beta of a portfolio is simply a weighted average of the betas of the stocks in the portfolio, so this portfolio's beta
112 would be:
113
114 Portfolio beta =
115

A
C
D
F
1
2 a. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then
calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting
the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital
5 gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the
index. Also, you cannot calculate the rate of return for 2015 because you do not have 2014 data.)
4
7
8
Data as given in the problem are shown below:
9.
Goodman Industries
Landry Incorporated
Market Index
10
Year
Stock Price
Dividend
Stock Price
Dividend Includes Divs.
$30.32
$2.23
$2.65
$2.73
$2.57
$2.23
$2.25
$85.12
$79.32
$74.32
$87.12
$95.12
$84.25
$3.52
$3.65
$3.45
$3.47
$3.55
$3.25
11
2020
18,475.97
12,174.55
12,019.97
10,743.05
9,455.42
8,163.96
2019
$23.53
$28.61
$15.21
$12.63
$13.21
12
13
2018
14
2017
15
2016
16
2015
17
18 We now calculate the rates of retun for the two companies and the index:
19
20
Goodman
Landry
Index
21
2020
22
2019
23
2018
24
2017
25
2016
26
27 Average
28
29 Note: To get the average, you could get the column sum and divide by 5, but you could also use the function
30 wizard, fx. Click fx, then statistical, then Average, and then use the mouse to select the proper range. Do this for
31 Goodman and then copy the cell for the other items.
32

Expert Solution

Step 1

Here,

Weight of G industries is 60%

Weight of L Incorporated is 40%

Inorder to calculate portfolio beta and required return, we will calculate beta and average return of two companies.

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