Ch8Solutions

Ch8Solutions - Chapter 8 Solutions to Problems 8-13 a. ri =...

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Chapter 8 Solutions to Problems 8-13 a. r i = r RF + (r M – r RF )b i = 9% + (14% – 9%)1.3 = 15.5%. b. 1. r RF increases to 10%: r M increases by 1 percentage point, from 14% to 15%. r i = r RF + (r M – r RF )b i = 10% + (15% – 10%)1.3 = 16.5%. 2. r RF decreases to 8%: r M decreases by 1%, from 14% to 13%. r i = r RF + (r M – r RF )b i = 8% + (13% – 8%)1.3 = 14.5%. c. 1. r M increases to 16%: r i = r RF + (r M – r RF )b i = 9% + (16% – 9%)1.3 = 18.1%. 2. r M decreases to 13%: r i = r RF + (r M – r RF )b i = 9% + (13% – 9%)1.3 = 14.2%. 8-14 Old portfolio beta = $150,000 $142,500 (b) + $150,000 $7,500 (1.00) 1.12 = 0.95b + 0.05 1.07 = 0.95b 1.1263 = b. New portfolio beta = 0.95(1.1263) + 0.05(1.75) = 1.1575 1.16. Alternative solutions: 1. Old portfolio beta = 1.12 = (0.05)b 1 + (0.05)b 2 + . .. + (0.05)b 20 1.12 = ) b ( i (0.05) i b = 1.12/0.05 = 22.4. New portfolio beta = (22.4 – 1.0 + 1.75)(0.05) = 1.1575 1.16. 2.
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This note was uploaded on 03/02/2011 for the course BMGT 340 taught by Professor White during the Spring '08 term at Maryland.

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Ch8Solutions - Chapter 8 Solutions to Problems 8-13 a. ri =...

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