Transcribed Image Text
Risk, Return, and the Capital Asset Pricing ModelAs a first dayintern at Tri-Star Management Incorporated the CEO asks you toanalyze the following in-formation pertaining to two common stockinvestments, Tech.com Incorporated and Sam’s Grocery Cor-poration.You are told that a one-year Treasury Bill will have a rate ofreturn of 5% over the next year. Also, information from aninvestment advising service lists the current beta for Tech.com as1.68 and for Sam’s Grocery as 0.52. You are provided a series ofquestions to guide your analysis.Estimated Rate of ReturnEconomy Probability Tech.com Sam’s Grocery S&P 500Recession 30% –20% 5% – 4%Average 20% 15% 6% 11%Expansion 35% 30% 8% 17% Boom 15% 50% 10% 27%Respond to this discussion board:After doing my calculations I decided that the best option in myopinion would be choosing the second portfolio where $70,000 isinvested in tech.com and $30,000 is invested in Sams GroceryCompetition. I think this is the best option because it gives ahigher return than the first option. I also think that the amountof risk someone is willing to take can play a part in which one isthe best option as well because if I was afraid of risk then Iwould go with the first portfolio. If we don't just look at thenumbers and we let risk make the decisions for us then they wouldprobably not make us to choose differently. In this case I couldchoose either or depending on how much of a risk I am willing totake after examining all of the numbers needed. If I am being riskythough then I would stick with the higher returns. In this case forhigher returns the second portfolio will be the best option becauseI can handle the risk