Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 11, Problem 21P
Suppose Ford Motor stock has an expected return of 20% a no a volatility of 40%, and Molson-Coors Brewing has an expected return of 10% and a volatility of 30%. If the two stocks are uncorrelated,
- a. What is the expected return and volatility of an equally weighted portfolio of the two stocks?
- b. Given your answer to part a, is investing all of your money in Molson-Coors stock an efficient portfolio of these two stocks?
- c. Is investing all of your money in Ford Motor an efficient portfolio of these two stocks?
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Students have asked these similar questions
Suppose General Motors stock has an expected return of
19%
and a volatility of
40%,
and Molson-Coors Brewing has an expected return of
11%
and a volatility of
30%.
If the two stocks are uncorrelated,
a. What is the expected return and volatility of a portfolio consisting of
72%
General Motors stock and
28%
of Molson-Coors Brewing stock?
b. Given your answer to
(a),
is investing all of your money in Molson-Coors stock an efficient portfolio of these two stocks?
c. Is investing all of your money in General Motors an efficient portfolio of these two stocks?
You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each
stock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (c) below. Probability
0.1
0.2
0.4
0.3
a. Compute the expected return for stock X and for stock Y.
The expected return for stock X is
(Type an integer or a decimal. Do not round.)
Economic Condition
Recession
Slow growth
Moderate growth
Fast growth
Returns
Stock X Stock Y
- 40
30
80
150
- 110
40
140
210
Following are the probability distribution of returns of portfolio of Stock A and Stock B in equal proportion
of weight in each state of economy. You are required to calculate Expected Return and Risk for individual
Stocks?
State of Economy
1
2
3
4
5
Probability
0.2
0.2
0.2
0.2
0.2
Return on Stock A
(%)
15
(5)
5
35
25
Return on Stock B
(%)
(5)
15
25
5
35
If you deposit Rs. 1,000 in the bank at a nominal interest rate of 6 percent, you will have Rs. 1,060 at the
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Chapter 11 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CCCh. 11.3 - Prob. 2CCCh. 11.4 - Prob. 1CCCh. 11.4 - Prob. 2CCCh. 11.4 - Prob. 3CCCh. 11.5 - What do we know about the Sharpe ratio of the...
Ch. 11.5 - If investors are holding optimal portfolios, how...Ch. 11.6 - When will a new investment improve the Sharpe...Ch. 11.6 - Prob. 2CCCh. 11.7 - Prob. 1CCCh. 11.7 - Prob. 2CCCh. 11.8 - Prob. 1CCCh. 11.8 - According to the CAPM, how can we determine a...Ch. 11 - You are considering how to invest part of your...Ch. 11 - You own three stocks: 600 shares of Apple...Ch. 11 - Consider a world that only consists of the three...Ch. 11 - There are two ways to calculate the expected...Ch. 11 - Using the data in the following table, estimate...Ch. 11 - Use the data in Problem 5, consider a portfolio...Ch. 11 - Using your estimates from Problem 5, calculate the...Ch. 11 - Prob. 8PCh. 11 - Suppose two stocks have a correlation of 1. If the...Ch. 11 - Arbor Systems and Gencore stocks both have a...Ch. 11 - Prob. 11PCh. 11 - Suppose Avon and Nova stocks have volatilities of...Ch. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 16PCh. 11 - What is the volatility (standard deviation) of an...Ch. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Suppose Ford Motor stock has an expected return of...Ch. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - A hedge fund has created a portfolio using just...Ch. 11 - Consider the portfolio in Problem 27. Suppose the...Ch. 11 - Prob. 29PCh. 11 - Prob. 30PCh. 11 - You have 10,000 to invest. You decide to invest...Ch. 11 - Prob. 32PCh. 11 - Prob. 33PCh. 11 - Prob. 34PCh. 11 - Prob. 35PCh. 11 - Prob. 36PCh. 11 - Assume all investors want to hold a portfolio...Ch. 11 - In addition to risk-free securities, you are...Ch. 11 - You have noticed a market investment opportunity...Ch. 11 - Prob. 40PCh. 11 - When the CAPM correctly prices risk, the market...Ch. 11 - Prob. 45PCh. 11 - Your investment portfolio consists of 15,000...Ch. 11 - Suppose you group all the stocks in the world into...Ch. 11 - Prob. 48PCh. 11 - Consider a portfolio consisting of the following...Ch. 11 - Prob. 50PCh. 11 - What is the risk premium of a zero-beta stock?...
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