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Part One Details (150 points) You are provided a beta, expected market return and risk-free rate of return for five companies. You will determine expected returns, variances, standard deviations for each of these five assets based upon probabilities of occurrence for five economic conditions. Once the above has been completed you will be tested on portfolio construction and portfolio metric development Beta 1.19 Market Risk Probability Premium 0.15 0.25 0.45 0.10 0.05 Econimie State Boom Pickup Normal Slowdown Recession Company One E(Rm) Rr 20% 0.5% 13% 1.3% 10% 2% 3% 3% -10% 5 5% Company Two Beta. E(Rm) 0.00 20% 0.00 13% 0.00 10% 0.00 3% 0.00 -10% 1.0 0.9 0.85 0.7 Company Three Beta E(Rm) 0.00 20% 0.00 13% 0.00 10% 0.00 3% 0.00 - 10% Rf 0.5% 1.3% 2.0% 3.0% 5.0% HIL 13% Company Four RI Beta E(Rm) Rr 0.5% 0.00 20% 0.5% 1.3% 0.00 2% 0.00 10% 2% 3% 0.00 3% 3% 5% 0.00 - 10.00% 5% Beta 1.04 0.95 0.90 0.86 0.77 Company Five E(Rm) Rr 20% 0.5% 13% 1.3% 10% 2% 3% 3% -10% 5% Co.1 Co. 2 Co.3 Co.4 Co. 5 (two decimal places and in % terms as applicable) Expected Returns Boom Pickup Normal Slowdown Recession Weighted Expected Return Weighted Beta Company One x-xbar squared weighted Company Two squared X-xbar Company Three Company Four Company Five weighted x-xbar squared weighted x-xbar squared weighted x-xbar squared weighted - (five decimal places for everything) Var/Stdev Calculations Boom Pickup Normal Slowdown Recession Probablity 0.15 0.25 0.45 0.10 0.05 Variance (five decimal places) Standard Deviation (two decimal places) li Weight Exp. Return Stdev Beta 1 Porfolio Construction (two decimal places and in terms were applicable) Company 1 2 3 4 5 Weighted Portfolio Metrics Portfolio Details Total Value of Portfolio Value of Company 1 Value of Company 2 Value of Company 3 Value of Company 4 Value of Company 5 125,000,000 18,750,000 37,500,000 25.000.000 25,000,000 18,750,00 0.00 Your firm is comfortable taking 5% more systematic risk. What is the proposed target metric for systematic risk? (three decimals) Using Company 3 as the lever for achieving this target, what new weighting of Company 3 is needed to accomplish this goal? Use Company S as the offset to whatever new Company 3 weighting is necessary, (three decimals) Part One Details (150 points) You are provided a beta, expected market return and risk-free rate of return for five companies. You will determine expected returns, variances, standard deviations for each of these five assets based upon probabilities of occurrence for five economic conditions. Once the above has been completed you will be tested on portfolio construction and portfolio metric development Beta 1.19 Market Risk Probability Premium 0.15 0.25 0.45 0.10 0.05 Econimie State Boom Pickup Normal Slowdown Recession Company One E(Rm) Rr 20% 0.5% 13% 1.3% 10% 2% 3% 3% -10% 5 5% Company Two Beta. E(Rm) 0.00 20% 0.00 13% 0.00 10% 0.00 3% 0.00 -10% 1.0 0.9 0.85 0.7 Company Three Beta E(Rm) 0.00 20% 0.00 13% 0.00 10% 0.00 3% 0.00 - 10% Rf 0.5% 1.3% 2.0% 3.0% 5.0% HIL 13% Company Four RI Beta E(Rm) Rr 0.5% 0.00 20% 0.5% 1.3% 0.00 2% 0.00 10% 2% 3% 0.00 3% 3% 5% 0.00 - 10.00% 5% Beta 1.04 0.95 0.90 0.86 0.77 Company Five E(Rm) Rr 20% 0.5% 13% 1.3% 10% 2% 3% 3% -10% 5% Co.1 Co. 2 Co.3 Co.4 Co. 5 (two decimal places and in % terms as applicable) Expected Returns Boom Pickup Normal Slowdown Recession Weighted Expected Return Weighted Beta Company One x-xbar squared weighted Company Two squared X-xbar Company Three Company Four Company Five weighted x-xbar squared weighted x-xbar squared weighted x-xbar squared weighted - (five decimal places for everything) Var/Stdev Calculations Boom Pickup Normal Slowdown Recession Probablity 0.15 0.25 0.45 0.10 0.05 Variance (five decimal places) Standard Deviation (two decimal places) li Weight Exp. Return Stdev Beta 1 Porfolio Construction (two decimal places and in terms were applicable) Company 1 2 3 4 5 Weighted Portfolio Metrics Portfolio Details Total Value of Portfolio Value of Company 1 Value of Company 2 Value of Company 3 Value of Company 4 Value of Company 5 125,000,000 18,750,000 37,500,000 25.000.000 25,000,000 18,750,00 0.00 Your firm is comfortable taking 5% more systematic risk. What is the proposed target metric for systematic risk? (three decimals) Using Company 3 as the lever for achieving this target, what new weighting of Company 3 is needed to accomplish this goal? Use Company S as the offset to whatever new Company 3 weighting is necessary, (three decimals)

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