fin1ans04Bspr09 2 - =-100 × 1 6 + 100 × 2 3 + 100 × 1 6...

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CARNEGIE MELLON UNIVERSITY Tepper School of Business INTRO FINANCE – FIN 70-391 Prof. Spencer Martin Solution Set 4B: Extra Practice With CAPM A Multiple Choice 1. What would be the beta of Microsoft stock? A positive number 2. What is the beta of a portfolio with E [ r p ] - r f = 60% , if r f = 10% and E [ r M ] - r f = 20% ? 3.00 3. Assuming the CAPM holds, which one of the following is true? Investors always demand a higher risk premium on assets with a higher beta. B Workout Problems 1. It’s perfectly possible that he just has a beta of 3 and no non-systematic risk. 2. (a) V
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Unformatted text preview: =-100 × 1 6 + 100 × 2 3 + 100 × 1 6 = $66 . 67 E [ r ] =-100 × 1 6 66 . 67 × . 10 + 100 × 2 3 66 . 67 × . 20 + 100 × 1 6 66 . 67 × . 30 E [ r ] =-. 25 × . 10 + 1 × . 20 + . 25 × . 30 = 25% (b) σ = r . 25 2 . 10 2 + 1 2 . 20 2 + . 25 2 . 50 2 = 23 . 7% (c) i. σ ii. . 25 = w × . 20 + (1-w ) × . 05-→ w = 4 / 3 . That’s 133 . 33% market and-33% T-Bill. (iv) E [ r M ] = 1 6 × . 10 + 2 3 × . 20 + 1 6 × . 30 = 20% E [ r HHS ] = . 30 = . 05 + β HHS × ( . 20-. 05) β HHS = . 1 . 67 1...
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This note was uploaded on 01/20/2012 for the course FINANCE 101 taught by Professor Unknown during the Spring '08 term at Carnegie Mellon.

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