Question: 1. Assume you begin with $10,000 in cash and $10,000 in stock A. Then you borrow $2,000, sell $7,000 of stock A, buy $12,000 of stock B, and short $2,000 of stock C. The remainder of your money you leave in cash. What are the weights of your portfolio?
2. What is the Beta of stock A, if the variance of A is .02, the variance of the market is .015, and the correlation between A and the market is .5?
3. The expected return on the market is 15% and the risk-free rate of return is 5%. If the Beta of the stock is 3, according to CAPM what is the expected rate of return for the stock?
4. BIB Company has 20% debt and 80% equity. BIB pays 10% interest on all of its debt. BIB has an equity beta of 3. The expected return on the market is 15% and the risk free rate of return is 5%. BIB pays no taxes. What is BIB's Weighted Average Cost of Capital (WACC)?