You Are Considering Investing Your Money with Value Max,a Professional

question 80

Essay

You are considering investing your money with Value Max,a professional money management firm.Value Max's portfolio maintains constant percentages in computer stocks (40%),bio-technology stocks (20%),and health service stocks (40%).Value Max has sent you the following information on past performance and investment details: Value Max returns = 40% per annum over the last 5 years; returns on NYSE index = 20% per annum over last 5 years; average annualized 6-month T-bill rate = 7% over last 5 years.Your research indicates that the average betas for the three sectors Value Max invests in are 1.2 for computer stocks,1.5 for bio-technology stocks,and 0.8 for health service stocks.
a. What is the appropriate beta to use to evaluate Value Max's portfolio?
b. Evaluate Value Max's performance over the last five years.

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Definitions:

Credit Terms

Conditions under which a seller extends credit to a buyer, detailing the repayment time frame and any interest or penalties for late payment.

Cash Discount

A reduction in the invoice price offered to encourage buyers to pay their bills promptly.

Net Purchases

The total purchases of inventory less returns, allowances, and discounts over a specific period.

Merchandise Available for Sale

The total quantity of goods that a retailer has on hand and ready to sell to customers.