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CAPM, PORTFOLIO RISK, AND RETURN Consider the following information for Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are net perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 53%, and the market is in equilibrium. (That is, required returns equal expected returns.) a. What is the market risk premium (r M – r RF )? b. What is the beta of Fund P? c. What is the required return of Fund P? d. Would you expect the standard deviation of Fund P to be less than 15%, equal to 15%, or greater than 15%? Explain.

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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 8, Problem 13P
Textbook Problem

CAPM, PORTFOLIO RISK, AND RETURN Consider the following information for Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are net perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.)

Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 53%, and the market is in equilibrium. (That is, required returns equal expected returns.)

Chapter 8, Problem 13P, CAPM, PORTFOLIO RISK, AND RETURN Consider the following information for Stocks A, B, and C. The

  1. a. What is the market risk premium (rM – rRF)?
  2. b. What is the beta of Fund P?
  3. c. What is the required return of Fund P?
  4. d. Would you expect the standard deviation of Fund P to be less than 15%, equal to 15%, or greater than 15%? Explain.

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Chapter 8 Solutions

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Ch. 8 - Suppose you owned a portfolio consisting of...Ch. 8 - The probability distribution of a less risky...Ch. 8 - A life insurance policy is a financial asset, with...Ch. 8 - Is it possible to construct a portfolio of...Ch. 8 - Stock A has an expected return of 7%, a standard...Ch. 8 - A stock had a 12% return last year, a year when...Ch. 8 - If investors aversion to risk increased, would the...Ch. 8 - If a companys beta were to double, would its...Ch. 8 - In Chapter 7, we saw that if the market interest...Ch. 8 - Suppose you own Stocks A and B. Based on data over...Ch. 8 - ABC Company's, stock earned a return of 10% this...Ch. 8 - EXPECTED RETURN A stocks returns have the...Ch. 8 - PORTFOLIO BETA An individual has 20,000 invested...Ch. 8 - REQUIRED RATE OF RETURN Assume that the risk-free...Ch. 8 - EXPECTED AND REQUIRED RATES OF RETURN Assume that...Ch. 8 - BETA AND REQUIRED RATE OF RETURN A stock has a...Ch. 8 - EXPECTED RETURNS Stocks A and B have the following...Ch. 8 - PORTFOLIO REQUIRED RETURN Suppose you are the...Ch. 8 - BETA COEFFICIENT Given the following; information,...Ch. 8 - REQUIRED RATE OF RETURN Stock R has a beta of 2.0,...Ch. 8 - CAPM AND REQUIRED RETURN Beale Manufacturing...Ch. 8 - CAPM AND REQUIRED RETURN Calculate the required...Ch. 8 - REQUIRED RATE OF RETURN Suppose rRF = 4%, rM =...Ch. 8 - CAPM, PORTFOLIO RISK, AND RETURN Consider the...Ch. 8 - PORTFOLIO BETA Suppose you held a diversified...Ch. 8 - CAPM AND REQUIRED RETURN HR Industries (HRI) has a...Ch. 8 - CAPM AND PORTFOLIO RETURN You have been managing a...Ch. 8 - PORTFOLIO BETA A mutual fund manager has a 20...Ch. 8 - EXPECTED RETURNS Suppose you won the lottery and...Ch. 8 - EVALUATING RISK AND RETURN Stock X has a 10%...Ch. 8 - REALIZED RATES OF RETURN Stocks A and B have the...Ch. 8 - SECURITY MARKET LINE You plan to invest in the...Ch. 8 - EVALUATING RISK AND RETURN Bartman Industrie's...Ch. 8 - RISK AND RETURN Assume that you recently graduated...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...

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