PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 7, Problem 7PS
Expected return and standard deviation A game of chance offers the following odds and payoffs. Each play of the game costs $100, so the net profit per play is the payoff less $100.
What are the expected cash payoff and expected
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A game of chance offers the following odds and payoffs. Each play of the game costs $200, so the net profit per play is the payoff less $200.
Probability
Payoff
Net Profit
0.10
$700
$500
0.50
300
100
0.40
0
–200
a-1. What is the expected cash payoff? (Round your answer to the nearest whole dollar amount.)
a-2. What is the expected rate of return? (Enter your answer as a percent rounded to the nearest whole number.)
b-1. What is the variance of the expected returns? (In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate calculations. Round your answer to the nearest whole number.)
b-2. What is the standard deviation of the expected returns? (Enter your answer as a percent rounded to 2 decimal places.)
Consider an investment with the following probability distribution:
Probability
Payoff
0.40
30.0
%
0.35
-4.0
0.25
-14.0
Calculate the expected return. Do not round intermediate calculations. Round your answer to two decimal places.
%
Calculate the standard deviation. Do not round intermediate calculations. Round your answer to two decimal places.
%
Calculate the coefficient of variation. Do not round intermediate calculations. Round your answer to two decimal places.
The cash position of a merchant is 10000 bushels of wheat , the variance of the changes of forward price is 0.00094, the variance of the changes of the base is 0.000453, the variance of the cash price changes is 0.000805 and the covariance of the changes of forward price with the changes of the cash prices is 0.000518. Calculate the efficiency of the hedge and choose one of the following answers.
a. 0.97
b. 0.31
c. 0.69
d. 0.03
Chapter 7 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 7 - Rate of return The level of the Syldavia market...Ch. 7 - Real versus nominal returns The Costaguana stock...Ch. 7 - Arithmetic average and compound returns Integrated...Ch. 7 - Risk premiums Here are inflation rates and U.S....Ch. 7 - Risk Premium Suppose that in year 2030, investors...Ch. 7 - Stocks vs. bonds Each of the following statements...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 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Diversification Here are the percentage returns on...Ch. 7 - Risk and diversification In which of the following...Ch. 7 - Prob. 14PSCh. 7 - Portfolio risk To calculate the variance of a...Ch. 7 - Portfolio risk a) How many variance terms and how...Ch. 7 - Portfolio risk Table 7.8 shows standard deviations...Ch. 7 - Portfolio risk Hyacinth Macaw invests 60% of her...Ch. 7 - Stock betas What is the beta of each of the stocks...Ch. 7 - Stock betas There are few, if any, real companies...Ch. 7 - Portfolio betas A portfolio contains equal...Ch. 7 - Portfolio betas Suppose the standard deviation of...Ch. 7 - Portfolio risk Here are some historical data on...Ch. 7 - Portfolio risk Suppose that Treasury bills offer a...
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