Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 8, Problem 11PS
Portfolio beta Refer to Table 7.5.
- a. What is the beta of a portfolio that has 40% invested in ExxonMobil and 60% in Newmont?
- b. Would you invest in this portfolio if you had no superior information about the prospects for these stocks? Devise an alternative portfolio with the same expected return and less risk.
- c. Now repeat parts (a) and (b) with a portfolio that has 40% invested in Travelers and 60% in Amazon.
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(Portfolio beta and CAPM) You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings:
a. What is the beta on each portfolio?
b. Which portfolio is riskier?
c. If the risk-free rate of interest were 4.5 percent and the market risk premium were 7 percent, what rate of return would you expect to earn from each of the portfolios?
a. The beta on the first portfolio is
Data table
Asset
A
AB
C
D
(Click on the icon
(Round to three decimal places.)
Portfolio Weightings
Print
Beta
2.30
0.90
0.55
- 1.30
in order to copy its contents into a spreadsheet.)
First Portfolio
12%
12%
38%
38%
Done
Second Portfolio
38%
38%
12%
12%
I
X
a. Using the data provided in problem 3, determine the return and risk for a portfolio made up of the following three stocks if you want to distribute your investment as follows: 20% in ADRE; 65% in MSFT and 15% in GOOG.b. How would the portfolio be affected if you distributed your investment in the following way: 30% in ADRE; 25% on MSFT and 45% on GOOG?c. Which of the two portfolios would a risk seeking investor prefer and why?
(Security market line) You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found below
Asset
A
Beta
2.30
B
C
D
0.80
0.60
-1.60
(Click on the icon
in order to copy its contents into a spreadsheet.)
a. What is the portfolio beta for your proposed investment portfolio?
b. How would a 25 percent increase in the expected return on the market impact the expected return of your portfolio?
c. How would a 25 percent decrease in the expected return on the market impact the expected return on each asset?
d. If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two stocks, which stock would you decrease and which would you increase? Why?
a. The portfolio beta for your proposed investment portfolio is
(Round to three decimal places)
Chapter 8 Solutions
Principles of Corporate Finance
Ch. 8 - Efficient portfolios For each of the following...Ch. 8 - Efficient portfolios Figure 8.11 purports to show...Ch. 8 - Portfolio risk and return Look back at the...Ch. 8 - Portfolio risk and return Mark Harrywitz proposes...Ch. 8 - Portfolio risk and return Ebenezer Scrooge has...Ch. 8 - Portfolio risk and return Here are returns and...Ch. 8 - Portfolio risk and return Percival Hygiene has IO...Ch. 8 - Sharpe ratio Use the long-term data on security...Ch. 8 - Portfolio beta Refer to Table 7.5. a. What is the...Ch. 8 - CAPM True or false? Explain or qualify as...
Ch. 8 - CAPM True or false? a. The CAPM implies that if...Ch. 8 - CAPM Suppose that the Treasury bill rate is 6%...Ch. 8 - CAPM The Treasury bill rate is 4%, and the...Ch. 8 - Cost of capital Epsilon Corp. is evaluating an...Ch. 8 - APT Consider a three-factor APT model. The factors...Ch. 8 - Prob. 18PSCh. 8 - APT Consider the following simplified APT model:...Ch. 8 - Prob. 20PSCh. 8 - Three-factor modelThe following table shows the...Ch. 8 - Efficient portfolios Look again at the set of the...
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