MyFinanceLab Ch. 8

MyFinanceLab Ch. 8 - Risk free rate o Beta on x-axis: Tells...

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MyFinanceLab: Ch. 8 Expected portfolio return: o (W1 x E(r)1) + (W2 x E(r)2) + … Portfolio SD (when given correlation): o Square root of: (W1^2)(SD1^2) + (W2^2)(SD2^2) + 2(W1)(W2)(correl.)(SD1)(SD2) If market portfolio were to increase by 10% what would happen to value of firm’s shares? o If beta is 2.85: Expected value increase of 28.5% Higher beta, higher risk o If beta is .625: Expected value increase of 15.625 Assuming increase of 25% Security market line graph: o Slope: Market risk premium o Y-intercept:
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Unformatted text preview: Risk free rate o Beta on x-axis: Tells us expected return on y-axis o A financial crisis can: Increase the slope of the security market line Increase expected returns Shift the security market line down (decrease expected returns) CAPM: o Exp. Return on Risky Asset: Risk free rate + beta(exp. Return on market portfolio risk free rate) Where market portfolio risk free rate = market risk premium o Portfolio beta: W1B1 + W2B2 +...
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This note was uploaded on 06/11/2011 for the course BUSI 408 taught by Professor Croce during the Spring '08 term at UNC.

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MyFinanceLab Ch. 8 - Risk free rate o Beta on x-axis: Tells...

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