You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks:
Stock | Investment | Stock’s Beta Coefficient |
A | $160 million | 0.5 |
B | 120 million | 1.5 |
C | 80 million | 1.8 |
D | 80 million | 1.0 |
E | 60 million | 1.5 |
Kish’s beta coefficient can be found as a weighted average of its stocks’ betas. The risk-free rate is 5%, and you believe the following probability distribution for future market returns is realistic:
Probability | Market Return | |
0.1 | -26 | % |
0.2 | 0 | |
0.4 | 13 | |
0.2 | 32 | |
0.1 | 48 |
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