Finance Finance

solve the problem with detailed formulas Finance 301 - Exam IV Take-Home Assignment Due: Monday, November 16th by 3:00 p.m. Point Total: 20.0 Note: Your responses to these questions must be hand-written. You must show your work for each problem. (Please complete question 1 using percentage values instead of decimals.) 1. Stocks X and Y have the following probability distributions: Returns Probability X Y 0.10 25% 9% 0.30 12% 7% 0.40 4% 5% 0.20 -12% 3% (14 points) a) Calculate the expected rate of return for each stock. b) Calculate the standard deviation for each stock. c) Calculate the coefficient of variation for each stock. d) If you form a 50-50 portfolio of the two stocks, calculate the expected rate of return and the standard deviation for the portfolio. (Remember, you must calculate a new range of outcomes for the portfolio.) 2. A money manager is holding the following portfolio: Stock Amount Invested Beta 1 $400,000 1.00 2 600,000 0.85 3 300,000 1.20 4 500,000 0.50 5 200,000 1.70 The risk-free rate is 7 percent and the portfolio’s required rate of return is 13.975 percent. The manager would like to sell all of her holdings of Stock 4 and use half the proceeds to purchase more shares of Stock 5, and the other half of the proceeds to purchase more shares of Stock 3. (6 points) a) What is the beta of the current portfolio? b) What is the beta of the new portfolio? c) What would be the portfolio’s required rate of return following this change? Exercise 5-9 (20 minutes) 1. THE HAAKI SHOP, INC. Income Statement—Surfboard Department For the Quarter Ended May 31 Sales $800,000 Less variable expenses: Cost of goods sold ($150 per surfboard × 2,000 surfboards*) $300,000 Selling expenses ($50 per surfboard × 2,000 surfboards) 100,000 Administrative expenses (25% × $160,000) 40,000 440,000 Contribution margin 360,000 Less fixed expenses: Selling expenses 150,000 Administrative expenses 120,000 270,000 Net operating income $ 90,000 *$800,000 sales ÷ $400 per surfboard = 2,000 surfboards. 2. Since 2,000 surfboards were sold and the contribution margin totaled $360,000 for the quarter, the contribution of each surfboard toward fixed expenses and profits was $180 ($360,000 ÷ 2,000 surfboards = $180 per surfboard). Another way to compute the $180 is: Selling price per surfboard $400 Less variable expenses: Cost per surfboard $150 Selling expenses 50 Administrative expenses ($40,000 ÷ 2,000 surfboards) 20 220 Contribution margin per surfboard $180