BUS_320_Chapter_8_Assignment_Solutions

BUS_320_Chapter_8_Assignment_Solutions - x.4 = 0.0 20 12 =...

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BUS 320 Chapter 8 Assignment Solutions 1) Amount % of Total Beta $28,000 35% 0.8 $52,000 65% 1.4 $80,000 Beta (portfolio) = (.35)(0.8) + (.65)(1.4) = 1.19 2) K = 4 + (11 – 4)(.8) = 9.6% 3) Market Risk Premium = (K MKT – K RF ) = 7% (K MKT – 6%) = 7% so, K MKT = 13% K = 6 + (13 – 6)(1.3) = 15.1% 4) 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
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Unformatted text preview: x .4 = 0.0 20 - 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. 5) Stock Investment % of Total Beta A $600,000 12% 1.00 B $800,000 16% 0.80 C 1,400,000 28% 1.10 D 2,200,000 44% 0.75 $5,000,000 Beta fund = (.12)(1.00) + (.16)(.80) + (.28)(1.10) + (.44)(.75) = .886 K fund = 5 + (12 – 5)(.886) = 11.2%...
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