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 feel their earnings have been adequately sheltered. Because they did not make any portfolio transactions during the past year, all of the Stalchecks’ s investments have been held more than 12 months, and they would have to consider only unrealized capital gains, if any. To make the necessary calculations, the Stalchecks have gathered the following information on each investment in their portfolio. Common stock. They own 400 shares of KJ Enterprises common stock. KJ is a diversified manufacturer of metal pipe and is known for its unbroken stream of dividends. Over the past few years, it has entered new markets and, as a result, has offered moderate capital appreciation potential. Its share price has risen from $ 17.25 at the start of the last calendar year to $ 18.75 at the end of the year. During the year, quarterly cash dividends of $ 0.20, $ 0.20, $ 0.25, and $ 0.25 were paid. Industrial bonds. The Stalchecks own eight Cal Industries bonds. The bonds have a $ 1,000 par value, have a 9.250 % coupon, and are due in 2027. They are A-rated by Moody’ s. The bonds were quoted at