Question 8 Consider the following four risky assets: Expected Standard Retums Deviation 15.00% Asset Correlations Firm 1 Firm 2 Fim 3 Firm 4 0.25 0.01 0.05 014 0.2 7.00% Firm 1 0.31 Firm 1 Firm 2 Firm 3 Firm 4 Firm 2 Firm 3 Firm 4 0.31 0.25 0.05 9.00% 22.00% 10.00% 28.00% -0.01 1 014 02 16.00% Risk-free Asset 6.00% 31.00% 0 00%
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- Which asset in the following table has the most market risk (also known as systematic or non-diversifiable risk)? (Ch. 8) Asset Return Beta Standard Deviation Asset A 9% 0.95 20% Asset B 13% 1.10 35% Asset C 10% 1.00 40% Group of answer choices Asset A Asset C Asset B and Asset C Asset BWhich asset in the following table has the most market risk (also known as systematic or non- diversifiable risk)? Asset A B Asset B Asset A Return Both Assets A and C Asset C (10% 12% 14% Beta 0.74 1.00 1.25 Standard Deviation 20% 40% 30%QUESTION 2 Exhibit 6.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset (A) Asset (B) E(RA) = 25% E(RB) = 15% (σA) = 18% (σB) = 11% WA = 0.75 WB = 0.25 COVA,B = −0.0009 Refer to Exhibit 6.2. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( σ i ), covariance (COVi,j), and asset weight (Wi) are as shown above? a. 18.64% b. 22.5% c. 11% d. 13.65% e. 20.0%
- Asset M Asset N j P?? Return, ?? P?? Return, ?? 1 0.25 10% 0.15 10% 2 0.25 -6% 0.30 8% 3 0.15 2% 0.20 15% 4 0.20 5% 0.05 0% 5 0.15 20% 0.30 -2% Calculate the expected value of return, ?̅, for each of the two assets. Which provides the largest expected return? Calculate the standard deviation, ?? , for each of the two assets’ returns. Which appears to have the greatest risk? Calculate the portfolio expected return if you invest 27% of your wealth in M and 73% inN, of your total wealth of $40,000.State ofEconomy Probabilityof State Return on AssetDin State Return on AssetEin State Return on AssetFin State Boom 0.35 0.060 0.310 0.25 Normal 0.50 0.060 0.180 0.20 Recession 0.15 0.060 -0.210 0.10 1. Calculate the standard deviation for each security.АВ С 8% 13% 5% Asset Return Standard Deviation12%20%0% Cov(A,B) There are two types of investors in the market. Investor X: has a Risk aversion level of 0.5 Investor Y: has a Risk aversion level of 4.5 For both investors find the respective weights of assets in (1) optimal risky portfolio and the (2) optimal complete portfolio given the following market situations: Lending is allowed at risk-free rate and rowing is allowed at 7% 72
- The expected value and the standard deviation of returns for asset A is Asset A Possible Outcomes Probability Returns (%) 0.25 10 0.45 12 0.30 16 Pessimistic Most likely Optimistic OA. 12 percent and 2.3 percent OB. 12 percent and 4 percent O C. 12.7 percent and 4 percent O D. 12.7 percent and 2.3 percent . (See below.)Four assets have the following distribution of returns. Probability Rate of return (%)Occurrence A B C D0.1 10.0 6.0 14.0 2.00.2 10.0 8.0 12.0 6.00.4 10.0 10.0 10.0 9.00.2 10.0 12.0 8.0 15.00.1 10.0 14.0 6.0 20.0 In each asset alculate The expected rate of return, standard deviation, variance coefficient of variationB с D E 1 Using the set of assumptions calculate the NPV, BCR and IRR for this project: 2 3 EBIT 4 CapEx 5 Depreciation 6 Increased working capital 7 Shares outstanding 8 Tax rate 9 WACC 10 Terminal growth rate 11 Value of debt 12 13 14 EBIT 15 Tax 16 EAT 17 Dep 18 Cap expenditures 19 Increase in WC 20 FCF 21 22 23 WACC 24 Terminal growth rate 25 Terminal value 26 27 28 Value of debt 29 Value of equity 30 Shares outstanding 31 Estimated value per share Estimated value of firm $120.0 million $25.0 million $15.0 million per year $18.0 million 4.0 million 21.00% 12.50% 4.00% $85.0 million 17.50% 21.00% 10.00% 12.50% 4.00% 1 Year 1 Year 1 Fixed over 5 years 2 F Growing at Growing at 3 G 17.50% 10.00% 4 H 5 I 6
- Cash Flow Asset End of year Amount Appropriate Required Return D 1 through 5 $1,500 12% 6 $8,500 By using cell references to the given datea and the function PV, Calculate the value of asset D.What range of returns should you expect to see with a 99 percent probability on an asset that has an average return of 10.49 percent and a standard deviation of 24.46 percent? Multiple Choice -13.97% to 34.95% -13.97% to 70% -62.89% to 83.87% -38.43% to 59.41% -26 20% to 4718%✓ Question 4 FI Two assets, Q & R, each have an expected return of 11.75%. Asset Q's standard deviation is 13% and Asset R's standard deviaion is 13.2%. A rational investor will choose: A. Either asset R or asset Q. B. Asset R. C. Asset Q. Question 5 Answers: 2 An investor whose portfolio is not diversified is subject to: Answers: A. systematic risk. Thursday, June 30, 2022 2:15:10 AM EDT W 4+ *3 B. non-systematic risk. C. both systematic risk and non-systematic risk. E $ 4 F4 R с F5 % 5 T F6 6 H Y F7 & 7 F8 U * 00 8 F9 81 L ( 9 F10 - F11 0 *+ F12 P PrtSc [ # 0 c Del Ba