Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 8, Problem 8Q
Summary Introduction
To explain: The effect on required return if the beta is doubled.
Introduction:
Portfolio Beta:
The portfolio beta is a measure of the volatility of the portfolio. It measures how the stock moves in the market. A high portfolio beta shows that securities are more volatile in the price movements while a low beta represents that securities are less volatile in the price movements.
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If a company’s beta were to double, would its required return also double?
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How would I do the same calculation if Beta is 1.2? That would be 1-1.2= -0.2 invested in the money market. How does that make sense?
Chapter 8 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 8 - Suppose you owned a portfolio consisting of...Ch. 8 - Prob. 2QCh. 8 - Prob. 3QCh. 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 - Prob. 8QCh. 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 - Prob. 11QCh. 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 - Prob. 10PCh. 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 - Prob. 14PCh. 8 - Prob. 15PCh. 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 have the...Ch. 8 - Prob. 21PCh. 8 - Prob. 22SPCh. 8 - Prob. 23ICCh. 8 - Prob. 1TCLCh. 8 - USING PAST INFORMATION TO ESTIMATE REQUIRED...Ch. 8 - Prob. 4TCLCh. 8 - Prob. 5TCLCh. 8 - Prob. 7TCLCh. 8 - Prob. 8TCL
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Similar questions
- A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.1. a. If the market return increased by 13%, what impact would this change be expected to have on the asset's return? b. If the market return decreased by 9%, what impact would this change be expected to have on the asset's return? c. If the market return did not change, what impact, if any, would be expected on the asset's return? d. Would this asset be considered more or less risky than the market?arrow_forwardInterpreting beta A firm wishes to assess the impact of changes in the market return on annasset that has a beta of 1.20arrow_forward“If the business cycle is predictable, and a stock has a positive beta, the stock’s returns also must be predictable.” Respond.arrow_forward
- The SML implies that if you could find an investment with a negative beta, its expected return, E(k), would be: E(k) < 0 E(k) < k f 0 < E(k) < k f kF < E(k) < E(kM)arrow_forwardWhich of the following statements is true? A company with a Beta less than 1.0 has a higher expect return than the market return A company with a Beta of 1.0 should have an expected return equal to an index fund. A roughly equal number of companies have positive Betas versus those with negative Betas The market Beta is 9%arrow_forwardA greater Beta suggests investors will require a ________return.arrow_forward
- If investors’ aversion to risk increased, would the risk premium on a high-beta stock increase more or less than that on a low-beta stock? Furthermore, If a company’s beta were to double, would its expected return double? Explain in detail.arrow_forwardWhat does a share’s beta of 1.5 mean? Is this share more or less volatile than the market? Explain your answer.arrow_forwardCan you explain what levered beta is and how to to calculate it. Also whow levered beta is connected to D/E ratio. What if i dont have the D/E ratio for a company and i only have the levered beta. How do i know the differencearrow_forward
- Suppose the beta coefficient of a stock doubles from B1= 1.0 to B2=2.0. Logic says that the required rate of return on the stock should also double, Is this correct?arrow_forwardConsider the following hypothetical firms with their respective beta ABC- 1 MNO- 0 QRS- 1.2 XYZ- 0.85 i. Which firm has the highest risk? ii. Which firm is risk free? iii. Which firm’s returns will be equal to the market returns? arrow_forwardIf a company has a high beta over 1.25 is it good to add to your 401k? What would the capm be for someone to base that decision off of ?arrow_forward
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