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FIN 402 Week 2 Assignment Case Problem 13.1 Assessing the
Stalchecks’s Portfolio Performance (Part a,b,c,d)
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Case Problem 13.1 Assessing the Stalchecks’s Portfolio Performance
Mary and Nick Stalcheck have an investment portfolio containing four
investments. It was developed to provide them with a balance between
current income and capital appreciation. Rather than acquire mutual
fund shares or diversify within a given class of investments, they
developed their portfolio with the idea of diversifying across various
asset classes. The portfolio currently contains common stock, industrial
bonds, mutual fund shares, and options. They acquired each of these
investments during the past three years, and they plan to purchase other
investments sometime in the future.
Currently, the Stalchecks are interested in measuring the return on their
investment and assessing how well they have done relative to the market.
They hope that the return earned over the past calendar year is in excess
of what they would have earned by investing in a portfolio consisting of
the S&P 500 Stock Composite Index. Their research has indicated that
the risk-free rate was 7.2% and that the (before-tax) return on the S&P
500 portfolio was 10.1% during the past year. With the aid of a friend,
they have been able to estimate the beta of their portfolio, which was
1.20. In their analysis, they have planned to ignore taxes because they