BD_SM_c10 - Chapter 10 Capital Markets and the Pricing of Risk 10-1 a E R =-0.25 0.1 0.1 0.2 0.1 0.25 0.25 0.3 = 5.5 Variance R =-0.25 0.055

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Chapter 10 Capital Markets and the Pricing of Risk 10-1. a. [] () () ( ) () E R 0.25 0.1 0.1 0.2 0.1 0.25 0.25 0.3 5.5% =− + + = b. [] () ( ) ( ) 22 Variance R 0.25 0.055 0.1 0.1 0.055 0.2 0.1 0.055 0.25 0.25 0.055 0.3 2.6% = −× + +− × + × = Standard Deviation 0.026 16.13% == 10-2. a. [] () () () () () E R 1 0.4 0.75 0.2 0.5 0.2 0.25 0.1 10 0.1 32.5% + = b. ( ) ( ) ( ) 2 Variance R 1 0.325 0.4 0.75 0.325 0.2 0.5 0.325 0.2 0.25 0.325 0.1 10 0.325 0.1 10.46 =−− + = Standard Deviation 10.46 3.235 323.5% = 10-3. Startup has a higher expected return, but is riskier. It is impossible to say which stock I would prefer. It depends on risk performances and what other stocks I’m holding. 10-4. Return from 1/2/03 2/5/03 1 30.67 0.17 R 1 0.08973 33.88 + = Return from 2/5 5/14 2 29.49 0.17 R 1 0.03293 30.67 + = Return from 514 8/13 3 32.38 0.17 R 1 0.10376 29.49 + = Return from 8/13 11/12 4 39.07 0.17 R 1 0.21186 32.38 + = Return from 11/12 ½ 5 41.99 0.17 R 1 0.07474 39.07 + = Return for the year is: 12345 1R 1R 1R 1R 1R 12 6 . 5 5 % ++ ++ + =
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90 Berk/DeMarzo Corporate Finance 10-5. Ford Motor Co (F) Month Stock Price Dividend Return 1+R Aug-97 43.000 0.05199 1.05199 Jul-97 40.875 0.420 0.08671 1.08671 Jun-97 38.000 0.01333 1.01333 May-97 37.500 0.07914 1.07914 Apr-97 34.750 0.12096 1.12096 Mar-97 31.375 -0.04563 0.95437 Feb-97 32.875 0.02335 1.02335 Jan-97 32.125 0.385 0.00806 1.00806 Dec-96 32.250 -0.01527 0.98473 Nov-96 32.750 0.04800 1.04800 Oct-96 31.250 0.01232 1.01232 Sep-96 -0.06716 0.93284 Aug-96 33.500 0.03475 1.03475 Jul-96 32.375 0.01189 1.01189 Jun-96 -0.11301 0.88699 May-96 36.500 0.01742 1.01742 Apr-96 35.875 0.350 0.05382 1.05382 Mar-96 34.375 0.10000 1.10000 Feb-96 0.05932 1.05932 Jan-96 29.500 0.03377 1.03377 Dec-95 28.875 0.02212 1.02212 Nov-95 28.250 -0.01739 0.98261 Oct-95 28.750 -0.06506 0.93494 Sep-95 31.125 0.01220 1.01220 Aug-95 30.750 0.06034 1.06034 Jul-95 29.000 0.310 -0.01479 0.98521 Jun-95 29.750 0.01709 1.01709 May-95 29.250 0.07834 1.07834 Apr-95 27.125 0.02084 1.02084 Mar-95 26.875 0.02871 1.02871 Feb-95 26.125 0.03465 1.03465 Jan-95 25.250 0.260 -0.08484 0.91516 Dec-94 27.875 0.02765 1.02765 Nov-94 -0.08051 0.91949 Oct-94 0.07243 1.07243 Sep-94 27.750 -0.05128 0.94872 Aug-94 Total Return (product of 1+R's) 1.67893 Equivalent Monthly return = (Total Return)^(1/36)-1 = 1.45%
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Chapter 10 Capital Markets and the Pricing of Risk 91 10-6. Ford Motor Co (F) Month Stock Price Dividend Return Aug-97 43.000 0.05199 Jul-97 40.875 0.420 0.08671 Jun-97 38.000 0.01333 May-97 37.500 0.07914 Apr-97 34.750 0.420 0.12096 Mar-97 31.375 -0.04563 Feb-97 32.875 0.02335 Jan-97 32.125 0.385 0.00806 Dec-96 32.250 -0.01527 Nov-96 32.750 0.04800 Oct-96 31.250 0.385 0.01232 Sep-96 31.250 -0.06716 Aug-96 33.500 0.03475 Jul-96 32.375 0.385 0.01189
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This note was uploaded on 10/08/2010 for the course ENGIN 120 taught by Professor Ilan during the Spring '08 term at University of California, Berkeley.

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BD_SM_c10 - Chapter 10 Capital Markets and the Pricing of Risk 10-1 a E R =-0.25 0.1 0.1 0.2 0.1 0.25 0.25 0.3 = 5.5 Variance R =-0.25 0.055

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