Prob Set Chap 8 - Kyle Woods Fin 315 Stendardi T/R...

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Kyle Woods Fin 315 – Stendardi T/R 9:30-10:50 Problem Set Chapter 8: # 1-7, 10, 13, 21-Bonus 1. Exp RR = .1(-50%) + .2(-5%) + .4(16) + .2(25) + .1(60) = (-5%) + (-1%) + 6.4% + 5% + 6% = 11.4% Standard Deviation: -.5 - .114 = -61.4% -61.4^2 = 3769.96(.1) = 376.996 -.05 - .114 = -16.4% -16.4^2 = 268.96(.2) = 53.792 .16 - .114 = 4.6% 4.6^2 = 21.16(.4) = 8.464 .25 - .114 = 13.6% 13.6^2 = 184.96(.2) = 36.992 .6 - .114 = 48.6% 48.6^2 = 2361.96(.1) = 236.196 712.44 Square root (712.44) = 26.6915717 = 26.69% Coefficient of variation = σ = 26.69 =2.34122807 = 2.34 r^ 11.4 2. ($40,000)(1.4) + (35000)(.8) = (.5333)(1.4) + (.4666)(.8) = .7466 + .373332 = 1.119932 = 1.1199 3. 6% + (13-6)(.7) = 6% + 7(.7) =6% + 4.9 =10.49% 4. = .05 + .06 = .11 = .05 + (.06)(1.2) = .05 + .072 = .122 = 12.2% 5. a) .11 = .07 + (.04)(x) .11 = .07 + .04x .11 = .11x 1 = x b) = .07 +(.06)(1) = .07 + .06
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RRR = .13 The rate of return would increase if the market risk premium increased to 6%. 6.
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Prob Set Chap 8 - Kyle Woods Fin 315 Stendardi T/R...

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