Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 7, Problem 17PS
Portfolio risk Table 7.9 shows standard deviations and correlation coefficients for eight stocks from different countries. Calculate the variance of a portfolio with equal investments in each stock.
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Calculate the correlation coefficient for the portfolio using the following information:
Variance of Stock X 0.08 Variance of Stock Y 0.06
Covariance is 0.05
a. 0.1042
b. 0.7217
c. 0.00024
d. 0.0693
Expected return of a portfolio using
beta.
The beta of four
stocks—P,
Q, R, and
S—are
0.49,
0.81,
1.19,
and
1.53,
respectively and the beta of portfolio 1 is
1.01,
the beta of portfolio 2 is
0.86,
and the beta of portfolio 3 is
1.15.
What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of
4.5%
(risk-free rate) and a market premium of
12.0%
(slope of the line)?
What is the expected return of stock P?
(Round to two decimal places.)
What is the expected return of stock Q?
(Round to two decimal places.)
What is the expected return of stock R?
(Round to two decimal places.)
What is the expected return of stock S?
(Round to two decimal places.)
What is the expected return of portfolio 1?
(Round to two decimal places.)
What is the expected return of portfolio 2?
(Round to two decimal places.)
What is the expected return of portfolio 3?…
Expected return of a portfolio using
beta.
The beta of four
stocks—G,
H, I, and
J—are
0.44,
0.75,
1.21,
and
1.55,
respectively and the beta of portfolio 1 is
0.99,
the beta of portfolio 2 is
0.83,
and the beta of portfolio 3 is
1.14.
What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of
3.5%
(risk-free rate) and a market premium of
10.0%
(slope of the line)?
What is the expected return of stock G?
(Round to two decimal places.)
What is the expected return of stock H?
(Round to two decimal places.)
What is the expected return of stock I?
(Round to two decimal places.)
What is the expected return of stock J?
(Round to two decimal places.)
What is the expected return of portfolio 1?
(Round to two decimal places.)
What is the expected return of portfolio 2?
(Round to two decimal places.)
What is the expected return of portfolio 3?…
Chapter 7 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 7 - Expected return and standard deviation A game of...Ch. 7 - Standard deviation of returns The following table...Ch. 7 - Average returns and standard deviation During the...Ch. 7 - Portfolio risk True or false? a. Investors prefer...Ch. 7 - Risk and diversification In which of the following...Ch. 7 - Portfolio risk To calculate the variance of a...Ch. 7 - Portfolio betas Suppose the standard deviation of...Ch. 7 - Portfolio betas A portfolio contains equal...Ch. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Stocks vs. bonds Each of the following statements...Ch. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Portfolio risk Hyacinth Macaw invests 60% of her...Ch. 7 - Portfolio risk a) How many variance terms and how...Ch. 7 - Portfolio risk Table 7.9 shows standard deviations...Ch. 7 - Portfolio risk Your eccentric Aunt Claudia has...Ch. 7 - Stock betas There are few, if any, real companies...Ch. 7 - Portfolio risk You can form a portfolio of two...Ch. 7 - Portfolio risk Here are some historical data on...Ch. 7 - Portfolio risk Suppose that Treasury bills offer a...Ch. 7 - Beta Calculate the beta of each of the stocks in...
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