FINANCE Case 13- Mid-Atlantic Specialty , Inc.
CASE13QUESTIONS MID-ATLANTICSPECIALTY,INC. FinancialRisk 1. Comparethe stand-alonerisk/returnofeachofthe fiveinvestmentalternativeslistedinExhibit13.1. 2. MSIisconsideringtwoinvestmentstrategies: -50percentinProjectAand50percentinProjectB(PortfolioA/B) or -50percentinProjectAand50percentintheS&P500Fund(PortfolioA/S&P). Comparethe riskofthetwoportfolios.Whydoestheriskdiffer? 3. a. b. Comparethe corporateriskofProjectsAandB.(Hint:UsetheexpectedreturnsinExhibit13.1to createagraphwithcorporatecharacteristiclinesforProjectsAand B.Regressionlinescanbe createdusingthe=INTERCEPTand=SLOPEfunctionsinExcel.TheXY(Scatter)chartinExcelis recommended.) Whatwouldhappento theoverallriskofMSIifitinvestsinProjectA?ProjectB? 4. a. b. c. Comparethe marketriskofa1-yearT-Bill,ProjectA,ProjectB,andequityinMSI.(Hint:Usethe historicalreturnsinExhibit13.2tocreateagraphwith marketcharacteristiclinesfora1-yearT-Bill, ProjectA,ProjectB,andequityinMSI.) Whatwouldhappento theoverallriskofawell-diversifiedportfoliowithaninvestmentina1-Year T-Bill?ProjectA?ProjectB?EquityinMSI? Whatdoesthedistancebetweenthemarketcharacteristicslineand theexpected returnofan investmentindicate? 5. a. b. Ifyouwereanindividualinvestorwithawell-diversifiedportfolio,whichinvestment(s)inExhibit13.1 wouldyoubuy?Why?(Inreality,MSIisanot-for-profitcorporation,soitwouldbeimpossible tobuy anequityinterestin thefirm.Forthisquestion,assumethatMSIisan investor-ownedcompany.) […]