MID-ATLANTICSPECIALTY,INC.FinancialRisk1. Compare the stand-alone risk/return of each of the five investment alternatives listed in Exhibit13.1.2. MSI is considering two investment strategies:-50percentinProjectAand50percentinProjectB(PortfolioA/B) or-50percentinProjectAand50percentintheS&P500Fund(PortfolioA/S&P). Comparethe riskofthetwoportfolios.Whydoestheriskdiffer?3.a.b.Comparethe corporateriskofProjectsAandB.(Hint:UsetheexpectedreturnsinExhibit13.1to createagraphwithcorporatecharacteristiclinesforProjectsAand B.Regressionlinescanbe createdusingthe=INTERCEPTand=SLOPEfunctionsinExcel.TheXY(Scatter)chartinExcelis recommended.)Whatwouldhappento theoverallriskofMSIifitinvestsinProjectA?ProjectB?4.a.b. c.Comparethe marketriskofa1-yearT-Bill,ProjectA,ProjectB,andequityinMSI.(Hint:UsethehistoricalreturnsinExhibit13.2tocreateagraphwith marketcharacteristiclinesfora1-yearT-Bill, ProjectA,ProjectB,andequityinMSI.)Whatwouldhappento theoverallriskofawell-diversifiedportfoliowithaninvestmentina1-YearT-Bill?ProjectA?ProjectB?EquityinMSI?Whatdoesthedistancebetweenthemarketcharacteristicslineand theexpected returnofan investmentindicate?5.a.b.Ifyouwereanindividualinvestorwithawell-diversifiedportfolio,whichinvestment(s)inExhibit13.1 wouldyoubuy?Why?(Inreality,MSIisanot-for-profitcorporation,soitwouldbeimpossible tobuy anequityinterestin thefirm.Forthisquestion,assumethatMSIisan investor-ownedcompany.) (Hint:constructaSecurityMarketLinegraphandplottheexpected returnofeachinvestmentonthegraph.)WhatdoesthedistancebetweentheSMLandtheexpectedreturnofaninvestmentindicate?6.a. b.c.Isthereturnontheone-yearT-billriskfree?SupposeMSIwantstoconstructaportfolioofstocksthathasanexpectedreturnequaltotherisk- freerate.Issuchaportfoliopossible?Issuchaportfoliolikely?Supposethatyouchoosetoholdasinglestockinvestmentinisolation.Would youbecompensated foralloftheriskthatyouassume?Explain.7. Inyouropinion,whatarethreekeylearningpointsfromthiscase?
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Using the online library and the internet, research and explore organizational strategy. Explore the websites for the following companies: Coca-Cola, Facebook, Green Mountain Roasters, Boeing. Using what you learned from your readings and research draw some conclusions and apply it to the following questions. What is the difference between an intended strategy […]
