couple q

Name:
Instructor:
Course:
Date:
Chapter 6 Question 8
Suppose interest rates on Treasury bonds rose from 5% to 9% as a result of higher interest rates in Europe. What effect would this have on the price of an average company’s common stock?
If the interest rates of treasury bonds increase as suggested from 5% to 9% the demand for the company common stock will decrease. This is because by interest on treasury bonds increasing the cost of borrowing is increased as companies will have to pay higher interest rates when issuing their own.
Chapter 6 Problem 3 For this question please view screenshot 6-1 diagram
EXPECTED INTEREST RATE The real risk-free rate is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities?
For the 3 year treasury bond Yr = y* + T + Mp
Mp= maturity risk premium.
Y = Number of years.
Yr= Yield rate
T = average inflation for the period
r = 3 + ((2+4+4)/3) + 0
r = 6.33%
For 2 year treasury bond Yr = y* + T + Mp
r = 3 + ((2+4)/2) + 0
r = 6% for the 2 year
Chapter 8 Question 4
Is it possible to construct a portfolio of real-world stocks that has a required return equal to the risk-free rate? Explain.

It is not possible to construct such a portfolio in the real world. Risk free rate is an investment with no risk of losing money invested which can only happen with treasury bonds. Other aspects in real life have unlimited number of risks as there are too many dynamics and nothing is guaranteed. Because of this, an investor has to be compensated for the risk taken through higher rates.
Chapter 8 Problem 2 For these questions please view screenshot 8-1 diagram
PORTFOLIO BETA An individual has $35,000 invested in a stock with a beta of 0 8 and another $40,000 invested in a stock with a beta of 1 4. If these are the only two investments in her portfolio, what is her portfolio’s beta?
Total portfolio value= value of first stock + value of the second stock
Total portfolio value = $35,000+40,000= $75,000
The weighted better of a stock= value of a stock / total portfolio value * the better factor
For the first investment portfolio given,
Weighted beta = $35,000 / $75,000 x 0.8
= 0.37
Weighted average beta for stock number 2 item
=$ 40,000 / $75,000 x 1.4 = 0.75
Portfolio Beta = weighted beta of the first beta+ weighted better of second portfolio = 0.37+ 0.75 =1.12 portfolio beta
Chapter 8 Problem 3
REQUIRED RATE OF RETURN Assume that the risk-free rate is 6% and the required return on the market is 13%. What is the required rate of return on a stock with a beta of 0 7?
Calculate the rate of return
Risk free rate (Rff)= 6$
Required return of the market Rmm= 13%
Beta factor (b)= 7
Required rate= x
r = RRf + (Rmm – RRf) b
= 6% + (13/100 – 6/100)0.7
= 10.9%.

Work Cited
Brigham, Eugene F., and Joel F. Houston. Fundamentals of financial management. Cengage Learning, 14e.