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Chapter 8 Homework Solutions

# Chapter 8 Homework Solutions - 12 = 8 2 = 64 x.2 = 12.8 38...

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Chapter 8 Homework Solutions 8-2) Amount % of Total Beta \$35,000 47% 0.8 \$40,000 53% 1.4 \$75,000 Beta (portfolio) = (.47)(0.8) + (.53)(1.4) = 1.12 8.3) K = 6 + (13 – 6)(.7) = 10.9% 8.4) Market Risk Premium = (K MKT – K RF ) = 6% (K MKT – 5%) = 6% so, K MKT = 11% K = 5 + (11 – 5)(1.2) = 12.2% 8-6) a. r y = (.1)(-35) + (.2)(0) + (.4)(20) + (.2)(25) + (.1)(45) = 14.0% b. Standard deviation for X: (Expected Return = 12%) Return -10 - 12 = (-22) 2 = 484 x .1 = 48.4 2 - 12 = (-10) 2 = 100 x .2 = 20.0 12 - 12 = 0 2 = 0 x .4 = 0.0 20
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Unformatted text preview: - 12 = 8 2 = 64 x .2 = 12.8 38 - 12 = 26 2 = 676 x .1 = 67.6 148.8 (148.8) 1/2 = 12.2% = Std. Dev. CV Y = 20.35 / 14.0 = 1.45 CV X = 12.2 / 12.0 = 1.02 Stock X is less risky than Stock Y. 8-7) Stock Investment % of Total Beta A \$400,000 10% 1.50 B \$600,000 15% (.50) C 1,000,000 25% 1.25 D 2,000,000 50% 0.75 \$4,000,000 Beta fund = (.10)(1.5) + (.15)(-.50) + (.25)(1.25) + (.50)(.75) = .763 K fund = 6 + (14 – 6)(.763) = 12.1% 8-16) Not on exam....
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