Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 12, Problem 5P
Using the data in Problem 4, suppose you are holding a market portfolio, and have invested $12,000 in Stock C.
- a. How much have you invested in Stock A?
- b. How many shares of Stock B do you hold?
- c. If the price of Stock C suddenly drops to $4 per share, what trades would you need to make to maintain a market portfolio?
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Please answer ALL OF QUESTIONS 1 AND 2
1. Assume that the risk-free rate is 3.5% and the market risk premium is 8%.
a. What is the required return for the overall stock market? Round your answer to two decimal places. __________ %
b. What is the required rate of return on a stock with a beta of 2.4? Round your answer to two decimal places. __________ %
2. An individual has $50,000 invested in a stock with a beta of 0.8 and another $55,000 invested in a stock with a beta of 2.0. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places._______
2B) You have $600,000 to invest in the stock market. Suppose you invested one-third of your wealth in stock Q and the rest in stock L. These stocks have the following characteristics: Stock Q has an expected return of 10% and a standard deviation of 7%. Stock L has an expected return of 18% and a standard deviation of 11%.
Determine the expected return and standard deviation on a portfolio of stocks Q and L, when the two stocks are uncorrelated and when they are negatively perfectly correlated.
Interpret and compare your answers in these two cases.
SOLVE IN EXCEL AND SHOW FORMULAS. 1. If the Annual Volatility of Stock YZ 27%, then what is XYZ 's daily volatility? 2. If you are holding a $600, 000, 000 ($600 million) position in Stock XYZ, what is the annual volatility (or annual o annual standard deviation) of XYZ in dollars (5's)? 3. If you are holding a $600,000,000 ($600 million) position in Stock XYZ, what is the daily volatility (or daily or daily standard deviation) in dollars (S's)? 4. What is the 1-day, 95% VaR for a $600 million equity position in Stock XYZ if Stock XYZ's annual volatility is 27%? [Use the Excel NORM.INV() function]. 5. What is the 5-day, 98% VaR of a $600 million equity position in Stock XYZ if Stock XYZ's annual volatility is 27% ?
Chapter 12 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 12.1 - According to the CAPM, we can determine the cost...Ch. 12.1 - What inputs do we need to estimate a firms equity...Ch. 12.2 - How do you determine the weight of a stock in the...Ch. 12.2 - Prob. 2CCCh. 12.2 - Prob. 3CCCh. 12.3 - How can you estimate a stocks beta from historical...Ch. 12.3 - How do we define a stocks alpha, and what is its...Ch. 12.4 - Why does the yield to maturity of a firms debt...Ch. 12.4 - Prob. 2CCCh. 12.5 - What data can we use to estimate the beta of a...
Ch. 12.5 - Prob. 2CCCh. 12.6 - Why might projects within the same firm have...Ch. 12.6 - Under what conditions can we evaluate a project...Ch. 12.7 - Prob. 1CCCh. 12.7 - Prob. 2CCCh. 12 - Prob. 1PCh. 12 - Suppose the market portfolio has an expected...Ch. 12 - Prob. 3PCh. 12 - Suppose all possible investment opportunities in...Ch. 12 - Using the data in Problem 4, suppose you are...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Suppose that in place of the SP 500, you wanted to...Ch. 12 - Prob. 9PCh. 12 - You need to estimate the equity cost or capital...Ch. 12 - In mid-2012, Ralston Purina had AA-rated, 10-year...Ch. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Your firm is planning to invest in an automated...Ch. 12 - Consider the setting of Problem 18. You decided to...Ch. 12 - Prob. 20PCh. 12 - In mid-2015, Cisco Systems had a market...Ch. 12 - Weston Enterprises is an all-equity firm with two...Ch. 12 - Prob. 24PCh. 12 - Your company operates a steel plant. On average,...Ch. 12 - Prob. 26PCh. 12 - You would like to estimate the weighted average...
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