A friend tips you off on a hot stock: Sure Thing Mines Ltd. You only have 10,000 to invest but you want to invest more. Assume that you can borrow an additional 5,000 by short-selling the risk free asset (issuing T-Bills).
You purchase 15,000 worth of shares in Sure Thing Mines Ltd.
The expected returns and standard deviations of the two assets are outlined in the table below:
Asset Expected Return Beta
T-Bills 5.5 0
Sure Thing Mines 15 1.70
What is the beta of the portfolio?
A) 1.50
B) 1.70
C) 2.50
D) 2.55
E) 2.70
Question 2
The present value of 100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is: (Round to the nearest whole dollar)
A) 236
B) 699
C) 42
D) 75
E) 50
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