University of Connecticut School of Business -Department of Finance Financial Management (FNCE3101) Homework 5 – Spring 2022 Prof. John D. Knopf Due: April 27th 11:59pm Complete on an EXCEL...

Can you complete the attached file on microsoft excel. So that the teacher can see work if he presses on the answer. Thank you.


University of Connecticut School of Business -Department of Finance Financial Management (FNCE3101) Homework 5 – Spring 2022 Prof. John D. Knopf Due: April 27th 11:59pm Complete on an EXCEL spreadsheet and submit to HUSKYCT. Use the following information to answer questions 1-4. Given the following information, State Probability Return A Return B Boom .20 .60 .25 Good .50 .20 .10 Recession .30 -.15 .05 Use the data given above to answer questions 1,2, and 3. 1. What are the expected rates of returns for Stock A and Stock B? 2. What are the variances of the returns for Stock A and Stock B? 3. What is the Correlation between Stock A and Stock B? 4. What are the risk premiums for Stock A and Stock B if the risk-free rate is 2%? Portfolio Expected Return Standard Deviation A .03 0 B .08 .22 C .30 .25 D .18 .35 E .20 .50 Use the data above to answer questions 5 and 6. 5. Plot the risk versus return for each stock with standard deviation on the horizontal axis and expected return on the vertical axis. 6. Which of the stocks would you not want, if you require greater returns for additional risk? Explain your answer. 7. Assume you begin with $20,000 in cash. Then you buy 15,000 of stock A, buy $25,000 of stock B, short $15,000 of stock C, and borrow $10,000. The remainder of your money you leave in cash. What are the weights of your portfolio? 8. What is the Beta of stock A, if the standard deviation of A is .40, the variance of the market is .04, and the correlation between A and the market is .4? 9. The expected return on the market is 10% and the risk-free rate of return is 2%. If the Beta of the stock is 2, according to CAPM what is the expected rate of return for the stock? 10. EAK Company has a debt-to-equity ratio of 1 (D/E = 1). EAK pays 5% interest on all its debt. EAK has an equity beta of 1. The market risk premium is 5.5% and the risk -free rate of return is 2%. EAK pays no taxes. What is EAK’s Weighted Average Cost of Capital (WACC)?