• Home

finance

JV OFFERING EXECUTIVE SUMMARY

RIVERSbrook LLC wholly owns County Plaza LLC and has invested $6,072,598 into the project to date. In addition, to the investment by RIVERSbrook LLC, Seas Investment House, an International real estate fund has made a loan of $2,000,000 into County Plaza LLC and has committed to fund an additional $9,000,000 in equity into the LLC upon closing a construction loan for the project. Finally, there exists a land loan to American Bank in the amount of $8,782,000 collateralized by the 28 acres of land. The land has been appraised at a value of $18,000,000.

We have been working to syndicate a $41,600,000 construction loan with American Bank, Oak Springs Bank and State Commerce Bank. This loan value was based on a Phase I budget in the amount of $57,000,000 and represents 73% debt to equity ratio and was anticipated to have a rate of LIBOR plus 325. Currently, the credit committee at American Bank (the lead bank) approved the loan contingent upon receiving a net worth guarantee in the amount of $50 million and a liquidity guarantee in the amount of $5 million. There was previous consensus among the bankers that the balance sheet of RIVERSbrook LLC and its partners was sufficient to cover these guarantees. However, with the drastic shifts in the credit markets and with the balance sheet of RIVERSbrook LLC being heavily weighted towards residential assets, the banks have stipulated that an additional credit enhancement will be required.

In light of the need to find a new partner and that we have executed leases for 53.1% of the total space, we have made the decision create a new budget and proforma based on the total square footage to be resubmitted to the banks along with the balance sheets of the new partner. This budget now represents a $74.7 million total project cost and generates stabilized return on cost return of 9.3% with an expected IRR of 26.5%.

RIVERSbrook LLC is looking to secure a new JV partner that will provide both the loan guarantees as stipulated by the banks and the additional equity required. It is expected with a 73% debt to equity ratio, with the costs to date incurred by RIVERSbrook LLC at $6,072,598, and with the repayment of the Seas Investment House $2,000,000 loan, the required equity from a JV partner will be $14.1 million.

RIVERSbrook LLC fully anticipates that the JV partner will require Managing Member status and major decision making controls, however, RIVERSbrook LLC is looking to remain as the day to day development, construction and leasing manager. RIVERSbrook LLC will work in this capacity to develop and lease the project.

As time is of the essence given that leases have been executed and the project can begin site work, RIVERSbrook LLC would like to receive offers for JV by November 10th, 2021.

Proprietary Property of UoNA

CONFIDENTIAL – For Academic Use Only

Finance

Read and review the attached offering memorandum and financial model.  Prepare a letter to your investor making your recommendation on the investment. 

Grading will not depend on whether you recommend the investment or not, but a point will be given (up to 10) for incorporating vocabulary and demonstration of concepts from Chapters 1-6 of the textbook.  

Finance

Read and review the attached offering memorandum and financial model.  Prepare a letter to your investor making your recommendation on the investment. 

Grading will not depend on whether you recommend the investment or not, but a point will be given (up to 10) for incorporating vocabulary and demonstration of concepts from Chapters 1-6 of the textbook.  

finance

PROJECT HIGHLIGHTS

RIVERS Plaza is a 274,000 square foot retail, entertainment and dining lifestyle center located in the heart of Rural County, VA, one of the fastest growing and wealthiest counties in the nation. With excellent demographics and huge average household income, RIVERS Plaza is set to become the next great retail location in Rural County. As RIVERS is contiguous to the 300,000 square foot County Village Center, and will extend the strength and drawing power of an existing market dominant center. County Village Center is anchored by Home Depot and Giant Foods. With the inclusion of the Target, Lowe’s anchored Arcounty Center and the Wal Mart, Kohl’s anchored National Landing, the total retail space anticipated at the intersection of Rural County Parkway and Route 150 will exceed 2,500,000 square feet.

1. Location

a. Located in Lacelilly, Rural County, VA

b. Positioned on Route 150 (34,000VPD) at a signalized intersection just west of the interchange with Rural County Parkway (27,000 VPD)

2. Project

a. Fully entitled and zoned for uses as presented by County Planning and Zoning.

b. All proffers and wetland mitigation approved.

c. Signalized intersection approved and installed at Oakbrook Road and Route 150.

d. North Oak Parkway Construction Documents 100% complete and approved.

e. Interparcel connector between County Village Center and RIVERS Plaza approved.

f. Civil Construction Documents 100% complete by City Engineering and Associates and through 4th and final revision with County Building and Development.

g. Architectural Construction Documents 95% complete by JKM Architects.

h. Tenant Design Handbook and Construction Criteria 100% complete.

3. Leasing

a. 53.1% of the space is Executed

i. Movie Theater Company – 47,500 square feet

ii. Platinum Gym – 45,000 square feet

iii. Bowling Strike – 31,455 square feet

iv. Thai Restaurant – 2,500 square feet

v. Nice Restaurant– 5,104 square feet

vi. Ice Cream – 1,483 square feet

vii. Kabob Restaurant– 1,761 square feet

b. 60.3% of the space Executed or Signed LOI

i. Learning Center – 13,000 square feet – LOI

ii. Pancake House – 5,000 square feet – LOI

c. 76.5% of the space Executed, under signed LOI, or in Active LOI discussion.

Proprietary Property of UoNA

CONFIDENTIAL – For Academic Use Only

Finance

What’s the difference between asset allocation and security selection? Please give an example of why strategic asset allocation is far more important than market timing and security selection.

Below are a few articles to extend this topic a little further. What is your take of the current market valuation?

2 pages

https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-market-capitalization-at-2x-gdp-how-ominous-is-it/?sh=603be9215864

https://www.ceicdata.com/en/indicator/united-states/market-capitalization–nominal-gdp

https://sgp.fas.org/crs/misc/IF11327.pdf

https://www.gurufocus.com/buffett_assets_allocations.php

Finance

What’s the difference between asset allocation and security selection? Please give an example of why strategic asset allocation is far more important than market timing and security selection.

Below are a few articles to extend this topic a little further. What is your take of the current market valuation?

2 pages

https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-market-capitalization-at-2x-gdp-how-ominous-is-it/?sh=603be9215864

https://www.ceicdata.com/en/indicator/united-states/market-capitalization–nominal-gdp

https://sgp.fas.org/crs/misc/IF11327.pdf

https://www.gurufocus.com/buffett_assets_allocations.php

Finance

 The Final Project will include a 4-5 pp  evaluating and analyzing an investment topic of interest to you. This topic should add value to the final program paper you develop in your capstone course. This will demonstrate the knowledge, comprehension, application, and analytical skills you acquired over this course. I would love to have something related to Elon Musk and his decision of trying to buy Twitter as an example of Strategic Valuation. 

finance

COST BUDGET

CONSTRUCTION COST
Cost
Land Loan To American Bank(2) $ 8,782,000
SIH Loan Re-Payment (includes 12% interest for one year) (2) $ 2,240,000
Pre-Development Costs To Date Sep. 24, 2008 (note held by OakBrook LLC and MM, LLC) (2) $ 6,072,596
Design / Engineering (remaining $$’s to be spent, other costs in pre-development) $ 500,000
Construction Administration (owners rep, owners office, insurance, bonds, permit fees) $ 500,000
Site Work (as an amount per acre, assuming 28 acres, surface parked) (1) $ 271,429 $ 7,600,000
Hardscape $ 1,000,000
North Oak Parkway Construction (reps. 1/2 of total costs, rest is paid by residential) $ 1,000,000
North Oak Parkway Signal Entrance $ 250,000
Wetlands Mitigation $ 300,000
Interchange Proffers $ 2,200,000
Building (4)
Retail (built out to a cold dark shell) $ 75.00 $ 6,487,350
Office (built out to a warm, vanilla box, plus elevator and exterior corridor) $ 110.00 $ 3,319,910
Theater (owner to build space with a cap of $8,500,000) $ 8,500,000
Gym $ 5,515,200
Bowling $ 4,089,150
Learning Centers $ 1,105,000
Retail Tenant Allowances
Specialty $ 36.22 $ 3,132,570
Office $ 10.00 $ 301,810
Retail Leasing Fee to be Executed $ 5.50 $ 939,120
Retail Leasing Fee Executed to Date $ 997,000
Marketing $ 350,000
Finance (assumes 73% of total at 6.46% interest for 1.5 years at 65%) 6.46% $ 3,436,044 $ 3,436,044
Loan Closing Costs (includes fees, title, and legal, calculated as a % of Loan amount) 2.0% $ 1,091,067 $ 54,553,373
Legal (per buildable square foot) $ 1.50 $ 411,146
Taxes $ 250,000
Development Fee (not including land, fees and finance) 5.0% $ 2,573,591 $ 51,471,826
Diamond Asset Management Fee (includes hard costs, land costs, design and marketing) 0.00% $ – 0 $ 57,305,586
Gulf Investment House Asset Management Fee 0.00% $ – 0 $ 57,305,586
Gulf Investment House Underwriting Fee (% of Gulf Investment House total equity) 0.00% $ – 0 $ 14,124,093
Contingency – Soft Costs 3.0% $ 242,512 $ 8,083,742
Contingency – Hard Costs 5.0% $ 1,544,582 $ 30,891,640
TOTAL CONSTRUCTION COSTS $ 74,730,648
DEBT 73% $ 54,553,373
EQUITY
New Equity (assumes SIH Loan Repayment) 69.9% $ 14,104,679
Oakbrook LLC 30.1% $ 6,072,596 $ 20,177,275
Notes:
(1) Site work includes clearing, grubbing, grading, utilities, parking, lighting and landscaping.
(2) Land has been appraised for $18 million.
&C&”Arial,Bold”&12RIVERS PLAZA
SUMMARY DEVELOPMENT BUDGET
&14
&LProprietary Information of
UoNA&C&”Arial,Bold”CONFIDENTIAL&”Arial,Regular”
For Academic Use Only&R

OPERATING PRO FORMA

RIVERS PLAZA
FINANCIAL ANALYSIS
CONSTRUCTION OPERATIONS
YEAR 1 YEAR 2 YEAR 1 YEAR 2 YEAR 3 YEAR 4 (Term Calc)
INCOME
ANCHOR RENT 1,693,392 2,406,642 2,781,642 2,853,552
SPECIALTY RENT 2,160,734 2,584,517 2,957,836 3,046,571
OFFICE RENT 286,720 442,982 608,361 626,612
GROUND RENT 150,660 536,455 859,329 885,109
PERCENTAGE RENT – 0 – 0 – 0 0
MISCELLANEOUS INCOME 59,500 83,300 119,000 122,570
TOTAL RENTS 4,351,006 6,053,895 7,326,168 7,534,414
SPECIALTY COLLECTION LOSS AND VACANCY INCLUDED IN RENT (267,465) (275,489)
TOTAL RENTS COLLECTED 4,351,006 6,053,895 7,058,704 7,258,925
EXPENSE RECOVERIES
CAM, INSURANCE & MANAGEMENT FEE 1,194,203 1,289,149 1,358,776 1,399,105
REAL ESTATE TAXES 644,128 663,452 683,355 703,856
TOTAL EXPENSE RECOVERIES 1,838,330 1,952,601 2,042,131 2,102,961
EFFECTIVE GROSS INCOME 6,189,336 8,006,496 9,100,835 9,361,887
EXPENSES:
COMMON AREA MAINTENANCE (1,096,388) (1,129,280) (1,163,158) (1,198,053)
REAL ESTATE TAXES (685,243) (705,800) (726,974) (748,783)
MANAGEMENT FEE (174,040) (242,156) (282,348) (290,357)
TOTAL EXPENSES (1,955,671) (2,077,235) (2,172,480) (2,237,193)
NET OPERATING INCOME: 4,233,665 5,929,261 6,928,355 7,124,694
Debt Service (3,524,148) (3,524,148) (3,524,148)
Partnership Expenses (15,000) (15,450) (15,914)
Property Capital Reserve (137,049) (141,160) (145,395)
NET CASH FLOW 557,469 2,248,503 3,242,899
Project Cash on Cost Return @ Land Value 5.7% 7.9% 9.3%
PARTNERSHIP DISTRIBUTIONS
Net Cash Flow 557,469 2,248,503 3,242,899
Preference to E+quity @ 12% (823,233) (2,421,273) (2,421,273) (2,421,273) (2,421,273)
Preference Payment to Bos E+quity @ 0% – 0 – 0 – 0 – 0 – 0
Cashflow to Partners – 0 – 0 – 0 – 0 821,626
Accrued Pref Repay to Equity – 0 – 0 – 0 – 0 (821,626)
Accrued Pref Repay to Bos Equity
Cashflow to Partners – 0 – 0 – 0 – 0 – 0
0.075 94,995,917
Closing Costs @ 3.0% (2,849,878)
Loan Payoff (54,553,373)
NET TERMINAL VALUE 37,592,667
Repay Accrued Pref to Equity (4,459,454)
Repay Accrued Pref to Bos Equity – 0
Net 33,133,213
Return of Equity to Equity (20,177,275)
Return of Equity to Bos Equity – 0
Net Available for Distribution 12,955,938
E+quity @ 100.0% 12,955,938
Bos E+quity @ 0.0% – 0
Bos Group @ 0.0% – 0
Diamond Properties @ 0.0% – 0
EQUITY IRR
TOTAL PROJECT COSTS (25,408,420) (49,322,228) – 0 – 0 – 0
DEBT 18,548,147 36,005,226 – 0 – 0 – 0
EQUITY (6,860,274) (13,317,002) – 0 – 0 – 0
EQUITY IRR (6,860,274) (13,317,002) – 0 – 0 – 0
EQUITY AND PREFERENCE REPAYMENT – 0 – 0 557,469 2,248,503 40,835,565
TOTAL (6,860,274) (13,317,002) 557,469 2,248,503 40,835,565
IRR Sale YR 3 26.54%
Bos Equity IRR
TOTAL PROJECT COSTS (25,408,420) (49,322,228) – 0 – 0 – 0
DEBT 18,548,147 36,005,226 – 0 – 0 – 0
EQUITY (6,860,274) (13,317,002) – 0 – 0 – 0
BOS GROUP EQUITY – 0 – 0 – 0
EQUITY AND PREFERENCE REPAYMENT – 0 – 0 – 0 – 0 – 0
TOTAL – 0 – 0 – 0 – 0 – 0 – 0
IRR Sale YR 3 0.00%
FINANCING
LOAN AMT 54,553,373 54,553,373 54,553,373
DEBT REPAYMENT – 0 – 0 – 0
NET LOAN AMOUNT 54,553,373 54,553,373 54,553,373
INTEREST 3,524,148 3,524,148 3,524,148
Equity Capital Account 6,860,274 20,177,275 20,177,275 20,177,275 20,177,275
Equity Repayments – 0 – 0 – 0 – 0
Total 6,860,274 20,177,275 20,177,275 20,177,275 20,177,275
Bos Equity Capital Account – 0 – 0 – 0 – 0 – 0
Equity Repayments – 0 – 0 – 0 – 0
Total – 0 – 0 – 0 – 0 – 0
Equity Accured Interest 823,233 2,421,273 2,421,273 2,421,273 – 0
Accrued Interest Repayment – 0 – 0 (557,469) (2,248,503) (821,626)
Total 823,233 3,244,506 5,108,310 5,281,080 4,459,454
Bos Equity Accrued Interest – 0 – 0 – 0 – 0 – 0
Accrued Interest Repayment – 0 – 0 – 0 – 0 – 0
Total – 0 – 0 – 0 – 0 – 0
&C&”Arial,Bold”&12RIVERS PLAZA
SUMMARY DEVELOPMENT BUDGET
&14
&LProprietary Information of
UoNA&C&”Arial,Bold”CONFIDENTIAL&”Arial,Regular”
For Academic Use Only

PRO FORMA ASSUMPTIONS

Lease Up Assumptions
Anchor Rent Assumptions Yr 1 Yr 2 Yr 3 Yr 4
Theater 1,094,392 1,094,392 1,094,392 1,094,392
Gym – 0 713,250 758,250 803,250
Bowling 300,000 300,000 630,000 630,000
Learning Centers 299,000 299,000 299,000 325,910
Total Anchor Rent 1,693,392 2,406,642 2,781,642 2,853,552
Specialty store lease up YR 1 77.5% [75% 1&2Q; 80% 3&4Q]
Specialty store lease up YR 2 90.0% [85% 5&6Q; 95% 7&8Q]
Office Space Lease Up Year 1 50.0%
Office Space Lease Up Year 2 75.0%
Ground Rent Lease Up Year 1 18.6% Pad K
Ground Rent Lease Up Year 2 64.3% Pad B, C and K
Ground Rent Lease Up Year 3 100.0% Pad E, B, C, and K
Rental Assumptions
Anchors PSF increase every 5th YR $ 0.50
Specialty rent annual growth rate 3.0%
Office Rent Annual Growth Rate 3.0%
Ground Rent Annual Growth Rate 3.0%
Specialty Collection Loss / Vacancy Allowance 7.5%
Percentage Rent YR 3 – 0
Percentage rent annual growth rate 3.0%
Other Income Assumptions
Miscellaneous Income YR 3:
10 Carts – 0
5 Payphones – 0
3 Vending 6,000
5 Directory Advertising – 0
2 ATM 8,000
Events 5,000
Sponsorship 100,000
119,000
Misc. Income YR 1 as % of YR 3 50%
Misc. Income YR 2 as % of YR 3 70%
Misc. Income annual growth rate 3.0%
Expense Recovery Assumptions
CAM & Management Fee Recovery 94%
Real Estate Tax Recovery 94%
Expense Assumptions
CAM and Insurance expense PSF of GLA $ 4.00
Real Estate Taxes $ 2.50
Management Fee @ 4% gross rent $ 0.63
Expense Growth Rates
CAM expense annual increase 3.0%
Real estate tax annual increase 3.0%
Management Fee % of Rents 4.0%
Financing
Construction Loan Funding Percentage 73.0%
Interest on Construction Loan 6.46% 1 Month LIBOR (assumed 321bps) + 325bps 646
Preference on Equity 12.0%
Preference on Other Equity 0.0%
Ownership
Equity 100.0%
Bos Equity 0.0% 0.0% 0.0% IRR
Bos Group 0.0% 0.0% 51.0% $ – 0
Diamond Properties 0.0% 0.0% 49.0% $ – 0
VALUATION
Capitalization Rate 7.50%
Cost of Sale % 3.0%
Capital Improvements
Capital Improvements $ 0.50
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Specialty Rent Growth 2,788,044 2,871,685 2,957,836 3,046,571 3,137,968 3,232,107 3,329,070 3,428,942 3,531,811 3,637,765
Office Rent Growth 573,439 590,642 608,361 626,612 645,411 664,773 684,716 705,258 726,415 748,208
Ground Rent Growth 810,000 834,300 859,329 885,109 911,662 939,012 967,182 996,198 1,026,084 1,056,866
&C&”Arial,Bold”&12RIVERS PLAZA
SUMMARY DEVELOPMENT BUDGET
&14
&LProprietary Information of
UoNA&C&”Arial,Bold”CONFIDENTIAL&”Arial,Regular”
For Academic Use Only

TENANT $

Get professional nursing essay writing service and professional nursing term paper writing service

Finance

Please read the following supplementary material. 

 – what is your take of the current stock market valuation? Please have the discussion focus on whether the Stock Market Capitalization-to-GDP ratio is still a good valid indicator. If so, how do you use it; if not, what are the drawbacks?

1 page

https://www.ceicdata.com/en/indicator/united-states/market-capitalization–nominal-gdp

https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-market-capitalization-at-2x-gdp-how-ominous-is-it/?sh=8997cbd5864e

https://sgp.fas.org/crs/misc/IF11327.pdf

https://www.gurufocus.com/buffett_assets_allocations.php

finance

9.1 How do lending (borrowing) possibilities change the Markowitz model?

9.4 What is the market portfolio?

9.7 How can we measure a security’s contribution to the risk of the market portfolio?

9.10 What are the difficulties involved in estimating a security’s beta?

9.13 What is “the law of one price”?

9.21 What is a factor model?

9.25 How can APT be used in investment decisions?

Spreadsheet Exercises

9.1 Assume that the annual price data below is for General Foods and a broad stock market index, covering the period 2003–2018. Calculate the beta for General Foods. Use the ESTLIN function or the SLOPE function in the spreadsheet.

ANCHOR ASSUMPTIONS
YEAR 3 TOTAL ALLOWANCES
NET RENT (DETAIL BELOW) RENT/
NAME SF $/PSF TOTAL(000) $/PSF TOTAL(000) COMMENTS COST
Major A Theater 47,500 $ 23.04 $ 1,094.4 $ 178.95 $ 8,500.1 12.9%
Major B Gym 45,000 $ 16.85 $ 758.3 $ 122.56 $ 5,515.2 13.7%
Major C Bowling 31,455 $ 20.03 $ 630.0 $ 130.00 $ 4,089.2 15.4%
Major D Learning Centers 13,000 $ 23.00 $ 299.0 $ 85.00 $ 1,105.0 27.1%
0 0 0 $ – 0 $ – 0 $ 2.00 $ – 0 0.0%
0 0 0 $ – 0 $ – 0 $ 2.00 $ – 0 0.0%
0 0 0 $ – 0 $ – 0 $ 2.00 $ – 0 0.0%
0 0 0 $ – 0 $ – 0 $ 2.00 $ – 0 0.0%
0.0%
0.0%
0.0%
0
0.0%
TOTALS 136,955 $ 2,781.6 $ 19,209.5 TOTAL RENT / TOTAL ALLOWANCES: 0.0%
AVERAGE PSF $ 20.31 $ 140.26 14.5%
454.95 $ 10.11
TI/CASH CONSTRUCTION DESIGN
ALLOWANCES ALLOWANCES ALLOWANCES
NAME $ PSF TOTAL(000) SHELL WDS TURNKEY $/PSF TOTAL(000) $/PSF TOTAL(000)
Major A Theater $ – 0 $ – 0 $ – 0 $ – 0 $ 178.95 $ 178.95 $ 8,500.1 $ – 0 $ – 0
Major B Gym $ 122.56 $ 5,515.2 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0
Major C Bowling $ 75.00 $ 2,359.1 $ – 0 $ 55.00 $ – 0 $ 55.00 $ 1,730.0 $ – 0 $ – 0
Major D Learning Centers $ 30.00 $ 390.0 $ – 0 $ 55.00 $ – 0 $ 55.00 $ 715.0 $ – 0 $ – 0
0 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ 2.00 $ – 0
0 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ 2.00 $ – 0
0 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ 2.00 $ – 0
0 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ 2.00 $ – 0
TOTALS $8,264.3 $10,945.2 $ – 0
AVERAGE PSF $ 60.34 $ 79.92 $ – 0
SPECIALTY TENANT ASSUMPTIONS
TI / CASH WHITEBOX
RENTALS ALLOWANCES CONSTRUCTION DESIGN
CATEGORY SF $/PSF TOTAL(000) $/PSF TOTAL(000) $/PSF TOTAL(000) $/PSF TOTAL(000)
Specialty Stores 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0
Building F $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0
F-1 2,197 $ 32.00 $ 70.3 $ 37.00 $ 81.3 $ – 0 $ – 0 $ – 0 $ – 0
F-3 2,163 $ 32.00 $ 69.2 $ 37.00 $ 80.0 $ – 0 $ – 0 $ – 0 $ – 0
F-5 2,165 $ 32.00 $ 69.3 $ 37.00 $ 80.1 $ – 0 $ – 0 $ – 0 $ – 0
F-7 2,015 $ 32.00 $ 64.5 $ 37.00 $ 74.6 $ – 0 $ – 0 $ – 0 $ – 0
Building A2 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0 $ – 0
A-1 2,002 $ 32.00 $ 64.1 $ 37.00 $ 74.1 $ – 0 $ – 0 $ – 0 $ – 0
A-3 1,975 $ 32.00 $ 63.2 $ 37.00

Year

GF

S&P

2018

40.58

1,211.92

2017

48.38

1,111.92

2016

40.96

879.82

2015

43.34

1,148.08

2014

55.38

1,320.28

2013

52.26

1,469.25

2012

59.49

1,229.23

2011

58.72

970.43

2010

45.93

740.74

2009

32.06

615.93

2008

21.93

459.27

2007

18.67

466.45

2006

17.24

435.71

2005

16.3

417.09

2004

9.29

330.22

2003

7.57

353.4

9.2 Given the information below, calculate the portfolio beta and the expected return on this two-stock portfolio using the CAPM.

If the weights were 50/50, would this increase or decrease the portfolio return?

If the market’s expected return had been 8 percent with the 60/40 weights, would this increase or decrease the portfolio return?

Market’s Expected Return

9% 

Risk-Free Rate

2.50%

Beta for Bateman Industries

0.98 

Beta for Advanced Solar Arrays

1.34 

Weight for Bateman

60% 

Weight for Solar Arrays

40% 

Portfolio Beta

Expected Return on the Portfolio