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