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Ch 13 Problems

# Ch 13 Problems - Another Example Consider the following...

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Another Example Consider the following information: State Probability ABC, Inc. (%) Boom .25 15 Normal .50 8 Slowdown .15 4 Recession .10 -3 • What is the expected return? • What is the variance? • What is the standard deviation? 13-7 E(R):= .25(15) + .5(8) + .15(4) + .1(-3) = 8.05% Variance:= .25(15-8.05)2 + .5(8-8.05)2 + .15(4-8.05)2 + .1(-3-8.05)2 = 26.7475 Standard Deviation = 5.17% 11.7

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Comprehensive Problem • The risk free rate is 4%, and the required return on the market is 12%. What is the required return on an asset with a beta of 1.5? • What is the reward/risk ratio? • What is the required return on a portfolio consisting of 400/0 of the asset above and the rest in an asset with an average amount of systematic risk? 13-59 R = .04 + 1.5 x (.12 - .04) = .16 The reward/risk ratio is 8% R = (.4 x .16) + (.6 x .12) = .136 11.59
Equilibrium Problem • You have the following information: • The risk free rate is 70/0, the market risk premium is 8 0 /0, the firm's growth rate is 10

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Ch 13 Problems - Another Example Consider the following...

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