PRIN.OF CORP.FINANCE-CONNECT ACCESS
13th Edition
ISBN: 2810023360757
Author: BREALEY
Publisher: MCG
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Chapter 23, Problem 14PS
Summary Introduction
To determine: The probability that the company default.
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Students have asked these similar questions
Assume that you are given the following historical returns for the Market and Security J. Also
assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected
market risk premium is 15.0 percent. Given this information, determine the required rate of return
for Security J for the coming year, using CAPM.
Year
1
2
O21.20%
3
4
5
6
O22.34%
O 23.49%
O24.63%
O24.10%
Market
10.00%
12.00%
16.00%
14.00%
12.00%
10.00%
Security J
12.00%
14.00%
18.00%
22.00%
18.00%
14.00%
Suppose your expectations regarding the stock market are as follows:
State of the Economy
Boom
Normal growth
Recession
Probability
0.3
0.4
0.3
Mean
Standard deviation
E (r)
Σ=1p(s)r(s)
Var (r) = o² = Σ³-1 P (s)[r (s) — E (r)]²
-
SD (r) = o = √Var (r)
Required:
Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
14.00%
23.24%
HPR
X
2 decimal places required.
44%
14
-16
Fox river company is analysing a new line of business and estimates the possible return on investments as;
Probability 0.1 0.2 0.4 0.2 0.1
Possible
returns(%) -10 5 20 35 50
What is;
a)the expected return
b)standard deviation
Chapter 23 Solutions
PRIN.OF CORP.FINANCE-CONNECT ACCESS
Ch. 23 - Expected yield You own a 5% bond maturing in two...Ch. 23 - Bond ratings In February 2018, Aaa bonds yielded...Ch. 23 - Bond ratings It is 2030 and the yields on...Ch. 23 - Prob. 4PSCh. 23 - Default option Other things equal, would you...Ch. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Default option Digital Organics has 10 million...Ch. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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