Question no. 1 You are managing an equal-weighted portfolio of stocks on behalf of your companys treasury. Assume that stock A and stock B are two risky assets. C is a risk-free asset. The details of these stocks are below: Stock A Stock B C (Risk-free asset rf) Average return 7.00% 15.00% 2.00% Variance of return 0.0064 0.0196 Sigma of return 8.00% 14.00% Covariance of returns 0.0011 Required Using the information in the above stated table calculate the following: a. Expected market portfolio return, E(RM) b. Market excess return c. The Sharpe ratio Explain what information the Capital Market Line and the Security Market Line give and why they are considered useful tools in portfolio management (250 words max). Question no. 2 A business firm has the following details: Annual Free Cash Flow 1,000 rU, unlevered cost of capital 20% D, debt (perpetual) 3,000 rD, the cost of debt (interest rate) 8% TC, corporate tax rate 40% Calculate: a. The unlevered value of the firm b. The value of the tax shield on interest c. The levered value of the firm d. The cash flow to equity (250 words max). Do you want your assignment written by the best essay experts? Then look no further. Our team of experienced writers are on standby to deliver to you a quality written paper as per your specified instructions. Order Now, and enjoy an amazing discount!!
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