Chapter 16 Solutions

Chapter 16 Solutions - Chapter 16 Solutions 1. a. Stock A...

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Chapter 16 Solutions 10. a0. Stock A Stock B Stock C Market increase .12 x 0.8 0.096 .12 x 1.7 0.204 .12 x 2.5 0.30 Beta Percentage increase Beginning value $ 2000 x 1.096 $ 2192 $ 2000 x 1.204 $ 2408 $ 2000 x 1.30 $ 2600 1+ percent increase Likely value b0. Stock A Stock B Stock C Market increase .19 x 0.8 0.152 .19 x 1.7 0.323 .19 x 2.5 0.475 Beta Percentage increase Beginning value $ 2000 x 1.152 $ 2304 $ 2000 x 1.323 $ 2646 $ 2000 x 1.475 $ 2950 1+ percent increase Likely value c0. Stock A Stock B Stock C Market decrease .08 x 0.8 0.064 .08 x 1.7 0.136 .08 x 2.5 0.20 Beta Percentage decrease Beginning value $ 2000 x .936 $ 1872 $ 2000 x .864 $ 1728 $ 2000 x .80 $ 1600 1– percent decrease Likely value d0. The total portfolio value if the market climbed 12 percent would be $7200, an increase of $1200. It would be $5200 if the market went down 8 percent, a decrease of $800.
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The following table shows the portfolio values if the entire $6000 had been invested in any single stock compared to the diversified portfolio: Diversified Portfolio Stock A Stock B Stock C Beginning value $6000 $6000 $6000 $6000 Value with 12 percent increase in market $7200 $6576 $7224 $7800 Value with 8 percent decrease $5200 $5616 $5184 $4800 Investing entirely in stock C produces the best results if the market goes up but the worst results if the market goes down. On the other hand, the entire investment in
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Chapter 16 Solutions - Chapter 16 Solutions 1. a. Stock A...

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