Ch 8 - 8-1= (0.1)(-50%) + (0.2)(-5%) + (0.4)(16%) +...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 8-1= (0.1)(-50%) + (0.2)(-5%) + (0.4)(16%) + (0.2)(25%) + (0.1)(60%)= 11.40%.2 = (-50% 11.40%)2(0.1) + (-5% 11.40%)2(0.2) + (16% 11.40%)2(0.4) + (25% 11.40%)2(0.2) + (60% 11.40%)2(0.1)2 = 712.44; = 26.69%.CV = = 2.34.8-2InvestmentBeta$35,0000.8 40,0001.4Total$75,000bp = ($35,000/$75,000)(0.8) + ($40,000/$75,000)(1.4) = 1.12.8-3rRF = 6%; rM = 13%; b = 0.7; r = ?r = rRF + (rM rRF)b= 6% + (13% 6%)0.7= 10.9%.8-4rRF = 5%; RPM = 6%; rM = ?rM = 5% + (6%)1 = 11%.r when b = 1.2 = ?r = 5% + 6%(1.2) = 12.2%.8-5a.r = 11%; rRF = 7%; RPM = 4%.Solutions to End-of-Chapter Problemsr= rRF + (rM rRF)b11% = 7% + 4%b4%= 4%bb= 1.b.rRF = 7%; RPM = 6%; b = 1.r = rRF + (rM rRF)b= 7% + (6%)1= 13%.8-6a..= 0.1(-35%) + 0.2(0%) + 0.4(20%) + 0.2(25%) + 0.1(45%)= 14% versus 12% for X.b. = . = (-10% 12%)2(0.1) + (2% 12%)2(0.2) + (12% 12%)2(0.4) + (20% 12%)2(0.2) + (38% 12%)2(0.1) = 148.8%.X = 12.20% versus 20.35% for Y.CVX = X/X = 12.20%/12% = 1.02, whileCVY = 20.35%/14% = 1.45.If Stock Y is less highly correlated with the market than X, then it might have a lower beta than Stock X, and hence be less risky in a portfolio sense.8-7Portfolio beta = (1.50) + (-0.50) + (1.25) + (0.75) bp= (0.1)(1.5) + (0.15)(-0.50) + (0.25)(1.25) + (0.5)(0.75)= 0.15 0.075 + 0.3125 + 0.375 = 0.7625.rp= rRF + (rM rRF)(bp) = 6% + (14% 6%)(0.7625) = 12.1%.Alternative solution: First, calculate the return for each stock using the CAPM equation [rRF + (rM rRF)b], and then calculate the weighted average of these returns.rRF = 6% and (rM rRF) = 8%.StockInvestmentBetar = rRF + (rM rRF)bWeightA$ 400,0001.5018%0.10B600,000(0.50)20.15C1,000,0001.25160.25D 2,000,0000.7512 .50 Total$4,000,0001 .00 rp = 18%(0.10) + 2%(0.15) + 16%(0.25) + 12%(0.50) = 12.1%.8-8In equilibrium:rJ = = 12.5%.rJ= rRF + (rM rRF)b12.5% = 4.5% + (10.5% 4.5%)bb = 1.33.8-9We know that bR = 1.50, bS = 0.75, rM = 13%, rRF = 7%....
View Full Document

Page1 / 10

Ch 8 - 8-1= (0.1)(-50%) + (0.2)(-5%) + (0.4)(16%) +...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online