EBK CONTEMPORARY ENGINEERING ECONOMICS
6th Edition
ISBN: 8220101336736
Author: Park
Publisher: PEARSON
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Chapter 13, Problem 17P
To determine
Calculate the license value.
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Find the expected value assuming the risk factor is 30 % and the interest rate is
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Find the expected value assuming the risk factor is 30 % and the interest rate is
15%, if you will receive $20,000 two years from today.
QUESTION 1
Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively.
Compute the standard deviation of the returns on the portfolio assuming that the two stocks' returns are uncorrelated.
17.4%.
27.4%.
7.4%.
11.4%.
QUESTION 2
Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively.
Describe what happens to the standard deviation of the portfolio returns when the coefficient of correlation ρ decreases.
The standard deviation of the portfolio returns decreases as the coefficient of correlation decreases.
The standard deviation of the portfolio returns increases as the coefficient…
Suppose you’re evaluating a new project costing 125 and yielding an expected payoff of 75 for the two subsequent years.
You know that the market(portfolio) rate is 0,10 that the covariance of the new investment’s payoff with the market portfolio is 0,2 and that the variance of the market payoff is 0,1.
You also know that the risk-free rate is 0,05. Would you accept the project if you do not account for the risk embodied in the new project? Why? What if you probably accounted for risk, by using CAPM?
Chapter 13 Solutions
EBK CONTEMPORARY ENGINEERING ECONOMICS
Ch. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10P
Ch. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 1STCh. 13 - Prob. 2STCh. 13 - Prob. 3STCh. 13 - Prob. 4ST
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