Fi 515 Week 2

6-1 Investment Beta $35,000 0.8 40,000 1.4 Total $75,000 ($35,000/$75,000)(0.8) + ($40,000/$75,000)(1.4) = 1.12. 6-4 ?r = (0.1)(-50%) + (0.2)(-5%) + (0.4)(16%) + (0.2)(25%) + (0.1)(60%) = 11.40%. ?2 = (-50% - 11.40%)2(0.1) + (-5% - 11.40%)2(0.2) + (16% - 11.40%)2(0.4) + (25% - 11.40%)2(0.2) + (60% - 11.40%)2(0.1) ?2 = 712.44; ?= 26.69%. CV = 11.40%26.69% = 2.34 6-7 a. ri = rRF + (rM - rRF)bi = 9% + (14% - 9%)1.3 = 15.5%. b. 1. rRF increases to 10%: rM increases by 1 portion render, from 14% to 15%. ri = rRF + (rM - rRF)bi = 10% + (15% - 10%)1.3 = 16.5%. 2. rRF decreases to 8%: rM decreases by 1%, from 14% to 13%. ri = rRF + (rM - rRF)bi = 8% + (13% - 8%)1.3 = 14.5%. c. 1. rM increases to 16%: ri = rRF + (rM - rRF)bi = 9% + (16% - 9%)1.3 = 18.1%. 2. rM decreases to 13%: ri = rRF + (rM - rRF)bi = 9% + (13% - 9%)1.3 = 14.2%. 7-7 a. using Excel, the regression equation estimates are: Beta = 0.56; terminate = 0.037; R2 = 0.96. b. R(Avg ) = (-14.0+23.0++18.2)/7 = 10.6% The arithmetic average rate of return on the mart portfolio, determined similarly, is 12.1%. For Stock X, the estimated regular deviation is 13.1 share: ? = 13.1% c. r(RF) = 10.6 6.8 / 0.44 = 8.6% d.

selective information on the risk-free security (bRF = 0, rRF = 8.6%) and security measure X (bX = 0.56, Xr = 10.6%) depart the two points through which the SML can be drawn. rM pass ons a third base point. e. In theory, you would be indifferent between the two stocks. Since they micturate the same beta, their relevant risks are identical, and in equilibri um they should provide the same returns. The! two stocks would be represented by a single point on the SML. Stock Y, with the high standard deviation, has more diversifiable risk, just this risk will be eliminated in a well-diversified portfolio, so the food market will compensate the investor nevertheless for bearing market or relevant risk. In practice, it is assertable that Stock Y would have a slightly higher required...If you want to discombobulate a full essay, order it on our website: BestEssayCheap.com

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