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Suppose a large institutional investor Alliance’s portfolio

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Suppose a large institutional investor Alliance’s portfolio

 

Suppose a large institutional investor Alliance’s portfolio has a beta of 0.5. Another institutional investor Best’s portfolio has an expected return of 10 percent and a standard deviation of 15 percent. Both portfolios have the same Sharpe ratio of 0.6, and the market portfolio can be described as a portfolio comprising these two with equal weights. Suppose there is a firm called Cunning corporation, whose stock’s beta is 2 and it can borrow at the risk free rate. Cunning’s equity value is £1 million and its debt is £1.5 million. The present value of Cunning’s tax shield is £0.3 million. Assuming that both CAPM and the Modigliani-Miller theorem with corporate taxes hold, answer the following questions. a) What is the risk free rate? b) What is the expected return on the market portfolio? c) What is the after-tax WACC of Cunning

 

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Suppose a large institutional investor Alliance’s portfolio

Perfect Suppose a large institutional investor Alliance’s portfolio

Suppose a large institutional investor Alliance’s portfolio

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