Solutions Manual
Fundamentals of Corporate Finance (Asia Global Edition)
Ross, Westerfield, Jordan, Lim and Tan
Updated April 2012
CHAPTER 13
RISK, RETURN, AND THE SECURITY
MARKET LINE
Answers to Concepts Review and Critical Thinking Questions
1.
Some of

Solutions Manual
Fundamentals of Corporate Finance (Asia Global Edition)
Ross, Westerfield, Jordan, Lim and Tan
Updated April 2012
CHAPTER 12
SOME LESSONS FROM CAPITAL
MARKET HISTORY
Answers to Concepts Review and Critical Thinking Questions
1
No, stocks

Solutions Manual
Fundamentals of Corporate Finance (Asia Global Edition)
Ross, Westerfield, Jordan, Lim and Tan
Updated April 2012
CHAPTER 10
MAKING CAPITAL INVESTMENT
DECISIONS
Answers to Concepts Review and Critical Thinking Questions
1.
In this context

Chapter 14 - Financial Statement Analysis
CHAPTER 14 FINANCIAL STATEMENT ANALYSIS
1. N a. Inventory turnover ratio in 2009. = 2850 / (490 + 480) x .5 = 1.47 b. Debt equity ratio in 2009. = 3340 / 960 = 3.48 c. Cash flow from operating activities in 2009.

Chapter 13 - Equity Valuation
CHAPTER 13 EQUITY VALUATION
1. Theoretically, dividend discount models can be used to value the stock of rapidly growing companies that do not currently pay dividends; in this scenario, we would be valuing expected dividends

Chapter 18 - Portfolio Performance Evaluation
CHAPTER 18
PORTFOLIO PERFORMANCE EVALUATION
1. a. Possibly. Alpha alone does not determine which portfolio has a larger Sharpe ratio.
Sharpe measure is the primary factor, since it tells us the real return per

Chapter 15 - Options Markets
CHAPTER 15 OPTIONS MARKETS
1. Options provide numerous opportunities to modify the risk profile of a portfolio. The simplest example of an option strategy that increases risk is investing in an `all options' portfolio of at th

Chapter 22 - Investors and The Investment Process
CHAPTER 22
INVESTORS AND THE INVESTMENT PROCESS
1.
The investment objectives of the Masons should be expressed in terms of return and
risk. These return and risk preferences should be portrayed in terms of

Chapter 06 - Efficient Diversification
CHAPTER 06 EFFICIENT DIVERSIFICATION
1. So long as the correlation coefficient is neither zero nor 1.0, the portfolio will contain diversification benefits. Any other combination will cause a diversification benefit

Solutions Manual
Fundamentals of Corporate Finance (Asia Global Edition)
Ross, Westerfield, Jordan, Lim and Tan
Updated April 2012
CHAPTER 7 B-2
CHAPTER 7
INTEREST RATES AND BOND
VALUATION
Answers to Concepts Review and Critical Thinking Questions
1.
No.

Chapter 21 - Taxes, Inflation, and Investment Strategy
CHAPTER 21 TAXES, INFLATION, AND INVESTMENT STRATEGY
1. Moral hazard. The owner now has an incentive to cause a loss and file a claim. 2. The owner will suffer from adverse selection. The owner will a

Solutions Manual
Fundamentals of Corporate Finance (Asia Global Edition)
Ross, Westerfield, Jordan, Lim and Tan
Updated April 2012
CHAPTER 8
STOCK VALUATION
Answers to Concepts Review and Critical Thinking Questions
1.
The value of any investment depends

Chapter 20 - Hedge Funds
CHAPTER 20 HEDGE FUNDS
1. No, a market-neutral hedge fund would not be a good candidate for an investors entire retirement portfolio because such a fund is not a diversified portfolio. The term market-neutral refers to a portfolio

Chapter 17 - Futures Markets and Risk Management
CHAPTER 17 FUTURES MARKETS AND RISK MANAGEMENT
1. Selling a contract is a short position. If the price rises, you lose money. Loss = (850 800) x 250 = $12,500 2. Futures price = 800 x (1 + .01 - .02) = 792

Solutions Manual
Fundamentals of Corporate Finance (Asia Global Edition)
Ross, Westerfield, Jordan, Lim and Tan
Updated April 2012
CHAPTER 11
PROJECT ANALYSIS AND EVALUATION
Answers to Concepts Review and Critical Thinking Questions
1.
Forecasting risk is

Chapter 19 - Globalization and International Investing
CHAPTER 19
GLOBALIZATION AND INTERNATIONAL INVESTING
1. False. Investments made in a local currency have the added risk associated with
exchange rates. If an investment were made in dollars, the busin

Solutions Manual
Fundamentals of Corporate Finance (Asia Global Edition)
Ross, Westerfield, Jordan, Lim and Tan
Updated April 2012
CHAPTER 9
NET PRESENT VALUE AND OTHER
INVESTMENT CRITERIA
Answers to Concepts Review and Critical Thinking Questions
1.
A pa

Chapter 12 - Macroeconomic and Industry Analysis
CHAPTER 12 MACROECONOMIC AND INDUSTRY ANALYSIS
1. A top-down approach to security valuation begins with an analysis of the global and domestic economy. Analysts who follow a top-down approach then narrow th

Chapter 10 - Bond Prices and Yields
CHAPTER 10 BOND PRICES AND YIELDS
1. a. Catastrophe bond. Typically issued by an insurance company. They are similar to an insurance policy in that the investor receives coupons and par value, but takes a loss in part o

2
C-R
1
2.1
( )
( )
( )
2
2.1.1
(CPI consumer price index)
r
See P79 eg5-1
r R i
R
1+ R
1+ r =
1+ i
R i
r =
1+ i
2 -1
i
2 - 2
2 - 3
3
2.1.2
4
2.1.3
(Fisher equation)
R = r + E (i )
2 - 4

5 CAPM
(Capital Asset Pricing Model, CAPM)
William Sharpe 1964 , John Lintner 1965
Jan Mossin 1966
1
CAPM
1952 Harry Markowitz
1964 William Sharpe CAPM
CAPM
2
2
5.1
IF
THEN
3
5.1
IF
1

CH9
4.
The series of $1,000 payments is a perpetuity. If beta is 0.5, the cash flow should
be discounted at the rate:
6% + [0.5 (16% 6%)] = 11%
PV = $1,000/0.11 = $9,090.91
If, however, beta is equal to 1, then the investment should yield 16%, and the
pri

7
CAPM
APT
1
7.1
Maurice Kendall, The analysis of economic time
series, Part I: Prices, Journal of the Royal
statistical society 96, 1953.
Random walk
A 3 20 / 23 /
23 /
3
2