Assignment: Week 6 Return and Risk Project Essay

Problem #1:

You are the investment consultant for a Saudi Arabian hospital to assess the risk for its future investments.

There are three potential opportunities:

Investing in Clinic A, or Clinic B or Clinic C.

They have the following probabilities with regard to their return on investment:

What is the expected return for each clinic?

Calculate the standard deviation of return for each clinic?

If the hospital is risk averse, which clinic would you recommend?

• If the hospital wants the highest, return which clinic would you recommend?
• If the hospital wants a good return but with a medium level of risk, which clinic would you recommend?

Problem #2:

The hospital invests in several Mutual Funds

• Calculate the required rate of return for each fund.
• Problem #3:
• Mutual Fund D is made up of the following stocks
• Based on this data calculate the portfolio’s return and Beta

Problem #4:

You are provided with the following information about a portfolio

Calculate the required rate of return for portfolio using CAPM

You must show all your calculations for credit. Your calculations for this assignment must be submitted as an Excel file.

Present your findings in a paper 4-5 pages in length excluding the cover, the reference page, and the excel spreadsheet for Problems #1-4.

Be sure to include:

Summary of findings.

Analysis of the acceptable level of risk for each scenario.

There are three potential opportunities: Investing in Clinic A, or Clinic B or Clinic C. . They have the following probabilities with regard to their return on investment: Probability Return for Return for of Retum Years Return for Clinic Clinic A Clinic B 1 2 3 0.10 0.20 0.40 0.20 0.10 5% 6X 7% 8% 9% 1% 3% 4% 5% 10% – 10% 0% 5% 15% 20% 4 Beta . What is the expected return for each clinic? – Calculate the standard deviation of return for each clinic? . If the hospital is risk averse, which clinic would you recommend? · If the hospital wants the highest, return which clinic would you recommend? . If the hospital wants a good return but with a medium level of risk, which clinic would you recommend? Problem #2: The hospital invests in several Mutual Funds Mutual Fund 0.75 B 0.55 с 1.25 Risk-free rate 0.06 Market rate 0.12 Calculate the required rate of return for each fund. Problem #3: Mutual Fund D is made up of the following stocks Stock % of Portoflio Beta Expected return 25% 0.75 0.17 35% 1.00 0.18 3 10% 0.90 0.22 1.45 0.16 5 1.25 0.19 100% Based on this data calculate the portfolio’s return and Beta Problem #4: You are provided with the following information about a portfolio Risk-free rate 0.05 Market Risk Premium Beta 1.55 Calculate the required rate of return for portfolio using CAPM You must show all your calculations for credit.

1. A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?

a. $23.11
b. $23.70
c. $24.31
d. $24.93
e. $25.57 2. If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock’s expected for the coming year?

a. 4.12%
b. 4.34%
c. 4.57%
d. 4.81%
e. 5.05% 3. If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock’s expected total return for the coming year?

a. 8.37%
b. 8.59%
c. 8.81%
d. 9.03%
e. 9.27% 4. Canterberry ‘s preferred stock pays a dividend of $0.75 per quarter. If the price of the stock is $39.00, what is its nominal
d. If a company’s beta increases, this will increase the cost of equity used to calculate the WACC, but only if the company does not have enough retained earnings to take care of its equity financing and hence must issue new stock.
e. Higher flotation costs reduce investors ‘ expected returns, and that leads to a reduction in a company’s WACC.

10. O ‘Brien Inc. has the following data: rRF = 5.00%; RPM = 6.00%; and b = 1.05. What is the firm ‘s cost of common from retained earnings based on the CAPM?

a. 11.30%
b. 11.64%
c. 11.99%
d. 12.35%
e. 12.72%

11. Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from retained earnings?

a. 11.10%
b. 11.68%
c. 12.30%
d. 12.94%
e. 13.59%

12. Anderson Systems is considering a project that has the following cash flow and WACC data. What is the project ‘s NPV? Note that if a project ‘s expected NPV is negative, it should be rejected. WACC: 9.00% Year 0 1 2 3 Cash flows -$1,000 $500 $500 $500 a. $265.65
b. $278.93
c. $292.88
d. $307.52
e. $322.90

Welcome to class

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I understand this is a lot of information to cover in 5 weeks, however, the Bible says in Philippians 4:13 that we can do all things through Christ that strengthens us. Even in times like this, we are encouraged by God’s word that we have that ability in us to succeed with His strength. I pray that each and every one of you receives strength for this course and life generally as we navigate through this pandemic that is shaking our world today. Relax and enjoy the course!

Sincerely,