Fi 515 Week 2

6-1 Investment Beta $35,000 0.8 40,000 1.4 Total $75,000 ($35,000/$75,000)(0.8) + ($40,000/$75,000)(1.4) = 1.12. 6-4 ?r = (0.1)(-50%) + (0.2)(-5%) + (0.4)(16%) + (0.2)(25%) + (0.1)(60%) = 11.40%. ?2 = (-50% - 11.40%)2(0.1) + (-5% - 11.40%)2(0.2) + (16% - 11.40%)2(0.4) + (25% - 11.40%)2(0.2) + (60% - 11.40%)2(0.1) ?2 = 712.44; ?= 26.69%. CV = 11.40%26.69% = 2.34 6-7 a. ri = rRF + (rM - rRF)bi = 9% + (14% - 9%)1.3 = 15.5%. b. 1. rRF increases to 10%: rM increases by 1 portion pass, from 14% to 15%. ri = rRF + (rM - rRF)bi = 10% + (15% - 10%)1.3 = 16.5%. 2. rRF decreases to 8%: rM decreases by 1%, from 14% to 13%. ri = rRF + (rM - rRF)bi = 8% + (13% - 8%)1.3 = 14.5%. c. 1. rM increases to 16%: ri = rRF + (rM - rRF)bi = 9% + (16% - 9%)1.3 = 18.1%. 2. rM decreases to 13%: ri = rRF + (rM - rRF)bi = 9% + (13% - 9%)1.3 = 14.2%. 7-7 a. using Excel, the regression equation estimates are: Beta = 0.56; interrupt = 0.037; R2 = 0.96. b. R(Avg) = (-14.0+23.0++18.2)/7 = 10.6% The arithmetic average rate of return on the mart portfolio, determined similarly, is 12.1%. For Stock X, the estimated regular deviation is 13.1 per centum: ? = 13.1% c. r(RF) = 10.6 6.8 / 0.44 = 8.6% d.

selective information on the risk-free security (bRF = 0, rRF = 8.6%) and warrantor X (bX = 0.56, Xr = 10.6%) depart the two points through which the SML can be drawn. rM pass ons a third base point. e. In theory, you would be indifferent between the two stocks. Since they micturate the same beta, their relevant risks are identical, and in equilibrium they should provide the s ame returns. The two stocks would be represe! nted by a single point on the SML. Stock Y, with the high standard deviation, has more diversifiable risk, except this risk will be eliminated in a well-diversified portfolio, so the grocery will compensate the investor nevertheless for bearing market or relevant risk. In practice, it is assertable that Stock Y would have a slightly higher required...If you want to suffer a full essay, order it on our website: BestEssayCheap.com

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