Soultion - chapter 8 - CHAPTER 8 ANSWERS AND SOLUTIONS 1,...

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1, Expected returns Answer: a EASY Conditions Probability Return Prob x Ret good 0.50 30.0% 15.0% average 0.35 9.0% 3.2% poor 0.15 -25.0% -3.8% 1.00 14.4% Expected return 3, Portfolio beta Answer: e EASY Company Investment Port. weight Beta Weight x beta Stock 1 $45,000 0.450 0.80 0.36 Stock 2 $55,000 0.550 1.40 0.77 $100,000 1.00 1.13 = Portfolio beta 4, CAPM Answer: b EASY Beta 1.20 Risk-free rate 4.50% Market risk premium 5.00% Required return 10.50% 5, Coefficient of variation Answer: d EASY Expected return 10.0% Standard deviation 30.0% Coefficient of variation 3.0 6, Calculating betas Answer: a MEDIUM Year Market Stock A 2001 -20.00% -40.00% 2002 -5.00% -10.00% 2003 40.00% 45.00% 2004 25.00% 40.00% 2005 10.00% 15.00% Beta A 1.47 Calculated with Excel, but could also use a calculator or a scatter diagram plot and graph paper. This is a relatively technical problem. It should be used only if calculations are emphasized in class or on a take-home exam where students have time to look up formulas or to use Excel or their
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This note was uploaded on 01/19/2011 for the course FINANCE AC acct200 taught by Professor Hamdibilici during the Fall '10 term at CSU Long Beach.

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Soultion - chapter 8 - CHAPTER 8 ANSWERS AND SOLUTIONS 1,...

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