Risk, Return, and the Capital Asset Pricing ModelAs a first day intern at Tri-Star Management Incorporated...

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Risk, Return, and the Capital Asset Pricing ModelAs a first dayintern at Tri-Star Management Incorporated the CEO asks you toanalyze the following in-formation pertaining to two common stockinvestments, Tech.com Incorporated and Samâ€™s Grocery Cor-poration.You are told that a one-year Treasury Bill will have a rate ofreturn of 5% over the next year. Also, information from aninvestment advising service lists the current beta for Tech.com as1.68 and for Samâ€™s Grocery as 0.52. You are provided a series ofquestions to guide your analysis.
Estimated Rate of Return
EconomyÂ Â Â Â Â Â Â Â Â Â Â Â ProbabilityÂ Â Â Â Â Â Â Â Â Tech.comÂ Â Â Â Â Â Â Â Â Â Â Samâ€™s GroceryÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â S&P 500
RecessionÂ Â Â Â Â Â Â Â Â Â 30%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â â€“20%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 5%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â â€“ 4%
AverageÂ Â Â Â Â Â Â Â Â Â Â Â Â 20%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 15%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 6%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 11%
ExpansionÂ Â Â Â Â Â Â Â Â Â 35%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 30%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 8%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 17%Â Â Â Â Â Â Â
BoomÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 15%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 50%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 10%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 27%
1. Which of these two-stock portfolios do you prefer?Why

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4.1 Ratings (681 Votes)

Economy Probability Tech com Er of Techcom Sams Grocery Er of Sams Grocery SP 500 market Er of SP 500 Recession 30 20 600 5 150 4 120 Average 20 15 300 6 120 11 220 Expansion 35 See Answer

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