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HW3Ans

# HW3Ans - 12 = 6 B p(8 Î 6 = 8 B p Î B p =.75 Problem 4[5...

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FIN 3300-03 Homework 3 Answers Winter 2010 Problem 1[10 points] Expected return = (.25 x 9%) + (.40 x 4%) + (.35 x -4%) = 2.45% Variance = .25(9% - 2.45%) 2 + .4(4% - 2.45%) 2 + .35(-4% - 2.45%) 2 = 10.73 + .96 + 14.56 = 26.25 Standard deviations = (26.25) 0.5 = 5.12% Problem 2 [5 points] [(3000/7500)(11%)] + [(4500/7500)(15%)] = (.4 x 11%) + (.6 x 15%) = 13.4% Problem 3 [5 points] r p = 6% + B p (8%) Î
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Unformatted text preview: 12% = 6% + B p (8%) Î 6% = 8% B p Î B p = .75 Problem 4 [5 points] Required return = r f + β (r m – r f ) = 3% + (1.2 × 8% ) = 12.6% This is greater than the project IRR. You should reject the project. Problem 5[10 points] (1) Answer: B (2) Answer: D (3) Answer: B (4) Answer: A (5) Answer: A (6) Answer: C (7) Answer: A (8) Answer: D (9) Answer: D (10) Answer: C...
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