BBF_304_TMA_1_Questions_LMS - Corporate Finance (BBF...

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Corporate Finance (BBF 304/05) TMA 1 (20% of final course marks) Answer all questions 1. (15 marks) According to CAPM, the expected return on a risky asset depends on three components. Describe each component, and explain its role in determining expected return. 2. (10 marks) Explain how the slope of the security market line is determined and why every stock that is correctly priced will lie on this line. 3. (20 marks) (a) Briefly define efficient market hypothesis (b) Critically discuss THREE evidences to support and THREE evidences against efficient market hypothesis. 1
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4. (22 marks) A portfolio manager invests his fund in the following proportion : 15 percent in stock A, 45 percent in stock B and 40 percent in stock C (a) What is the expected portfolio return for each state of the economy ( E(r) Boom, E(r) Normal, E(r) Bust ) AND for the total states of the economy ( E(r) Portfolio, total states ) ? (12 marks) (b) What is the variance and standard deviation of this investment portfolio ? (10 marks)
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This note was uploaded on 02/14/2011 for the course BBF 304 taught by Professor Tang during the Spring '11 term at Aachen University of Applied Sciences.

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BBF_304_TMA_1_Questions_LMS - Corporate Finance (BBF...

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