Corporate Finance Chp7 Solutions

Corporate Finance Chp7 Solutions - U.S Treasury Bills are...

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Chapter 7 Homework 7.3 Expected return= (.1 * $300,000)+(.9 * $40,000) Expected return= $30,000 + $36,000  Expected return= $66,000 Standard deviation=sqrt((.1*$300,000^2+.9*40,000^2)-(.1*$300,000+.9*$40,000)^2) Standard deviation=sqrt(6,084,000,000) Standard deviation=$78,000 7.6 Because different types of investments perform better under different market condition investing in more than one type of investment can help reduce the risk of your overall  investment portfolio. 7.9
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Unformatted text preview: U.S Treasury Bills are assumed to be risk-free; therefore, its beta is zero. 7.12 RoR=Rf+beta*Rp 10=4+1*Rp Rp=6% RoR=4+1.5*6 RoR=13% 7.16 Probability Return Expected Return Boom 0.1 25% 2.5% Good 0.4 15% 6% Level 0.3 10% 3% Slump 0.2-5%-1% 10.5% Standard deviation=sqrt(.1*25^2+.4*15^2+.3*10^2+.2*-5^2)-(2.5+6+3-1)^2 Standard deviation=sqrt(77.25) Standard deviation=8.789 7.24 8% same as market 7.32 RoR=Rf+beta*Rp 15=5+1*Rp Rp=10% RoR=5+.5*10 RoR=10% Chapter 7 Homework ns,...
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This note was uploaded on 09/18/2011 for the course FIN 302 taught by Professor Peterson during the Spring '08 term at University of Miami.

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Corporate Finance Chp7 Solutions - U.S Treasury Bills are...

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