![EBK CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/8220103145947/8220103145947_largeCoverImage.jpg)
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 40P
a)
Summary Introduction
To determine: The Sharpe ratio.
Introduction:
The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio. Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.
b)
Summary Introduction
To determine: The correlation between the EB Company’s stock with the OA Company’s stock.
Introduction:
Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.
c)
Summary Introduction
To determine: The Sharpe ratio of SOA Company’s fund.
Expert Solution & Answer
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Students have asked these similar questions
Suppose you are given stocks A and B. Stock A has an expected return of 11% and a standard deviation of 4%. Stock B has an expected return of 21% and a standard deviation of 10%. The correlation between them is -1. Suppose it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Round answer to 3 decimal places.)
The Optima Mutual Fund has an expected return of 19.5% and a volatility of 20.4%. Optima claims that no other portfolio offers a higher Sharpe ratio. Suppose this claim is true, and the risk-free interest rate is 5.5%.
What is Optima’s Sharpe Ratio?
If eBay’s stock has a volatility of 37.8% and an expected return of 9.3%, what must be its correlation with the Optima Fund?
If the SubOptima Fund has a correlation of 85% with the Optima Fund, what is the Sharpe ratio of the SubOptima Fund?
You want to allocate your money between the risk free asset (0.015), a fixed income fund ( E(B)=0.079, Volatility(B)=0.11), and a diversified stock fund ( E(S)=0.116, Volatility(S)=0.18). The correlation between the two risky funds is 0.57. When creating the optimal risky portfolio, how much weight in decimals should you invest in the diversified stock fund?
Chapter 11 Solutions
EBK CORPORATE FINANCE
Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CCCh. 11.3 - Prob. 2CCCh. 11.4 - Prob. 1CCCh. 11.4 - Prob. 2CCCh. 11.4 - Prob. 3CCCh. 11.5 - What do we know about the Sharpe ratio of the...
Ch. 11.5 - If investors are holding optimal portfolios, how...Ch. 11.6 - When will a new investment improve the Sharpe...Ch. 11.6 - Prob. 2CCCh. 11.7 - Prob. 1CCCh. 11.7 - Prob. 2CCCh. 11.8 - Prob. 1CCCh. 11.8 - According to the CAPM, how can we determine a...Ch. 11 - You are considering how to invest part of your...Ch. 11 - You own three stocks: 600 shares of Apple...Ch. 11 - Consider a world that only consists of the three...Ch. 11 - There are two ways to calculate the expected...Ch. 11 - Using the data in the following table, estimate...Ch. 11 - Use the data in Problem 5, consider a portfolio...Ch. 11 - Using your estimates from Problem 5, calculate the...Ch. 11 - Prob. 8PCh. 11 - Suppose two stocks have a correlation of 1. If the...Ch. 11 - Arbor Systems and Gencore stocks both have a...Ch. 11 - Prob. 11PCh. 11 - Suppose Avon and Nova stocks have volatilities of...Ch. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 16PCh. 11 - What is the volatility (standard deviation) of an...Ch. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Suppose Ford Motor stock has an expected return of...Ch. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - A hedge fund has created a portfolio using just...Ch. 11 - Consider the portfolio in Problem 27. Suppose the...Ch. 11 - Prob. 29PCh. 11 - Prob. 30PCh. 11 - You have 10,000 to invest. You decide to invest...Ch. 11 - Prob. 32PCh. 11 - Prob. 33PCh. 11 - Prob. 34PCh. 11 - Prob. 35PCh. 11 - Prob. 36PCh. 11 - Assume all investors want to hold a portfolio...Ch. 11 - In addition to risk-free securities, you are...Ch. 11 - You have noticed a market investment opportunity...Ch. 11 - Prob. 40PCh. 11 - When the CAPM correctly prices risk, the market...Ch. 11 - Prob. 45PCh. 11 - Your investment portfolio consists of 15,000...Ch. 11 - Suppose you group all the stocks in the world into...Ch. 11 - Prob. 48PCh. 11 - Consider a portfolio consisting of the following...Ch. 11 - Prob. 50PCh. 11 - What is the risk premium of a zero-beta stock?...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 1)Please briefly define the following terms Risk Aversion Risk-Neutral Diversification Unsystematic Risk (also give examples) Systematic Risk (also give examples) 2)Please just list the four basic sources of long term funds. 3)Please explain the difference between the terms interest rate and required return by defining each. 4)Suppose you have a portfolio of Vestel and Turkcell with a beta of 1.8 and 0.9, respectively. If you put 29% of your money in Vestel, and the rest in Turkcell, what is the beta of your portfolio?arrow_forward. a. A mutual fund with beta of .8 has an expected rate of return of 14%. If rf = 5%, and you expect the rate of return on the market portfolio to be 15%, should you invest in this fund? What is the fund’s alpha?b. What passive portfolio comprised of a market-index portfolio and a money market account would have the same beta as the fund? Show that the difference between the expected rate of return on this passive portfolio and that of the fund equals the alpha from part (a).arrow_forwardIf the risk-free rate of return is 2.1%, the beta of the mutual fund is 1.7, and the return of market is 5%, what is the required rate of return?arrow_forward
- The NXP fund has an expected return of 2.40%, with volatility 23.00%. The risk free rate is 1.40%, the market volatility is 17.50%, and the correlation between NXP returns and market returns is 0.16. What is the Treynor ratio for NXP?arrow_forwardThe market portfolio (M) has the expected rate of return E(rM) = 0.12. Security A is traded in the market. We know that E(rA) = 0.17 and βA = 1.5. (1) What is the rate of return of the risk-free asset (rf)? (2) Security B is also traded in the market. βB = 0.8. Then what is “fair” expected rate of return of security B according to the CAPM? (3) Security C is a third security traded in the market. βC = 0.6, and from the market price, investors calculate E(rC) = 0.1. Is C overpriced or underpriced? What is αC?arrow_forwardFinance The risk-free rate is 3.7 percent and the expected return on the market is 12.3 percent. Stock A has a beta of 1.1and an expected return of 13.1 percent. Stock B has a beta of .86 and an expected return of 11.4 percent. Arethese stocks correctly priced? Why or why not? Use E(Ri) = Rf + βi(E(RM) − Rf).arrow_forward
- Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.arrow_forwardSuppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 9% 19 Correlation = -1 Standard Deviation 5% 12 Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places.) Risk-free rate %arrow_forwardSuppose Stock A has B = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate is 5%. Also consider that the covariance between B and the market is 0.135. Assume the CAPM is true. Answer the following questions: a) Calculate the expected return on share B. b) Find the equation of the Capital Market Line (CML). c) Build a portfolio Q with B = 0 using actions A and B. Indicate weights (interpret your result) and expected return of portfolio Q.arrow_forward
- Assume an economy in which there are three securities: Stock A with rA = 10% and σA = 10%; Stock B with rB = 15% and σB = 20%; and a riskless asset with rRF = 7%. Stocks A and B are uncorrelated (rAB = 0). Which of the following statements is most CORRECT? 1. b. The expected return on the investor’s portfolio will probably have an expected return that is somewhat below 10% and a standard deviation (SD) of approximately 10%. 2. d. The investor’s risk/return indifference curve will be tangent to the CML at a point where the expected return is in the range of 7% to 10%. 3. e. Since the two stocks have a zero correlation coefficient, the investor can form a riskless portfolio whose expected return is in the range of 10% to 15%. 4. a. The expected return on the investor’s portfolio will probably have an expected return that is somewhat above 15% and a standard deviation (SD) of approximately 20%. 5.…arrow_forwardA portfolio that combines the risk-free asset and the market portfolio has an expected return of 6.4 percent and a standard deviation of 9.4 percent. The risk-free rate is 3.4 percent, and the expected return on the market portfolio is 11.4 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .39 correlation with the market portfolio and a standard deviation of 54.4 percent? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forward1. Blackrock Fund has expected return of 10.5%, standard deviation of 17.5%, and beta of 0.8. Nippon Fund has expected return of 12.5%, standard deviation of 21% and beta of 1.1. The two mutual funds have correlation coefficient of 0.7. Find the expected return and standard deviation of the market, What is the riskless rate of return?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
![Text book image](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
![Text book image](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9780134897264/9780134897264_smallCoverImage.gif)
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337395250/9781337395250_smallCoverImage.gif)
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9780077861759/9780077861759_smallCoverImage.gif)
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Chapter 8 Risk and Return; Author: Michael Nugent;https://www.youtube.com/watch?v=7n0ciQ54VAI;License: Standard Youtube License