#5 CAPM

#5 CAPM - UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL KENAN-FLAGLER BUSINESS SCHOOL BUSI 408 CORPORATE FINANCE PRACTICE PROBLEM SET#5 PORTFOLIO

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NIVERSITY OF N ORTH C AROLINA A T C HAPEL H ILL K ENAN -F LAGLER B USINESS S CHOOL B USI 408: C ORPORATE F INANCE P RACTICE P ROBLEM SET #5: P ORTFOLIO T HEORY AND C APM P ROF . A RZU O ZOGUZ 1. Suppose that the risk-free rate is 6.3%, and the market portfolio has en expected return of 14.8%. The market portfolio has a variance of 0.0121. Portfolio Z has a correlation coefficient with the market of 0.45 and a variance of 0.0169. According to CAPM, what is the expected return on portfolio Z? 2. Suppose you have invested $30,000 in the following four stocks: Security Amount invested Beta Stock A $5,000 0.75 Stock B $10,000 1.10 Stock C $8,000 1.36 Stock D $7,000 1.88 The risk free rate is 4%, and the expected return on the market portfolio is 15%. Based on the CAPM, what is the expected return on the above portfolio? 3. Ms. Sharp thinks that the distribution of rates of return on Q-mart stock is as follows: State of the economy Probability of state Return (%) Depression 0.10 -4.5% Recession
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This document was uploaded on 11/04/2011 for the course BUSI 408 at UNC.

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#5 CAPM - UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL KENAN-FLAGLER BUSINESS SCHOOL BUSI 408 CORPORATE FINANCE PRACTICE PROBLEM SET#5 PORTFOLIO

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