CORPORATE FINANCE- ACCESS >C<
12th Edition
ISBN: 9781307447248
Author: Ross
Publisher: MCG/CREATE
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Chapter 12, Problem 1QAP
Summary Introduction
Adequate information:
Expected GNP growth = 3.5%
Expected interest rate = 2.9%
Beta on change in GNP (ßGNP) = 1.3
Beta on change in interest rate (ßr) = -0.47
Expected
Actual GNP growth = 3.2%
Actual interest rate = 2.7%
To compute: The revised expected return.
Introduction: Expected return simply refers to the return that is anticipated on the investment.
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Students have asked these similar questions
How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example:
The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
Stock A has expected return of 15% and standard deviation (s.d.) 20%. Stock B has expected return 20% and s.d. 15%. The two stocks have a correlation coefficient of 0.5.
1.Note that Stock A has greater risk (s.d.) that Stock B, but a lower expected return. Explain how is this possible in a world where returns on assets are as predicted by the CAPM.
2. Determine the expected return and the s.d. of portfolio P1, composed by investing 30% in stock A and 70% in stock B.
3. Consider stock C that has expected return 15% and s.d. 15%. Stock C is uncorrelated with either stock A and stock B. Determine the expected return and s.d. of portfolio P2 made by investing 50% in stock C and 50% in portfolio P1.
Consider an event study of the following stock.
Realised return
Market return
t = 0 (event day)
0.1
0.1
t =1
0.06
0.04
t = 2
0.03
0.02
t = 3
0.015
0.01
Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?
Chapter 12 Solutions
CORPORATE FINANCE- ACCESS >C<
Ch. 12 - Prob. 1CQCh. 12 - Prob. 2CQCh. 12 - Prob. 3CQCh. 12 - Prob. 4CQCh. 12 - Market Model versus APT What are the differences...Ch. 12 - APT In contrast to the CAPM, the APT does not...Ch. 12 - CAPM versus APT What is the relationship between...Ch. 12 - Prob. 8CQCh. 12 - Data Mining What is data mining? Why might it...Ch. 12 - Prob. 10CQ
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