PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 7, Problem 22PS
Stock betas There are few, if any, real companies with negative betas. But suppose you found one with β = –.25.
- a. How would you expect this stock’s
rate of return to change if the overall market rose by an extra 59%? What if the market fell by an extra 5%?
You have $1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $20,000 bequest. Which of the following actions will yield the safest overall portfolio return?
- i. Invest $20,000 in Treasury bills (which have β = 0).
- ii. Invest $20,000 in stocks with β = 1.
- iii. Invest $20,000 in the stock with β = –.25.
Explain your answer.
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You hear on the news that the S&P 500 was down 1.6% today relative to the risk-free rate (the market's excess return
was -1.6%). You are thinking about your portfolio and your investments in Hewlett Packard and Proctor and Gamble.
a. If Hewlett Packard's beta is 1.3, what is your best guess as to Hewlett Packard's excess return today?
b. If Proctor and Gamble's beta is 0.5, what is your best guess as to P&G's excess return today?
a. If Hewlett Packard's beta is 1.3, what is your best guess as to Hewlett Packard's excess return today?
Hewlett Packard's excess return today is %. (Round to one decimal place.)
You hear on the news that the S&P 500 was down 2.1% today relative to the risk-free rate (the market's excess return was
-2.1%). You are thinking about your portfolio and your investments in Hewlett Packard and Proctor and Gamble.
a. If Hewlett Packard's beta is 1.1, what is your best guess as to Hewlett Packard's excess return today?
b. If Proctor and Gamble's beta is 0.4, what is your best guess as to P&G's excess return today?
KIDE
a. If Hewlett Packard's beta is 1.1, what is your best guess as to Hewlett Packard's excess return today?
Hewlett Packard's excess return today is %. (Round to one decimal place.)
You hear on the news that the S&P 500 was down 1.7% today relative to the risk-free rate (the market's excess return was - 1.7%). You are thinking about your
portfolio and your investments in Hewlett Packard and Proctor and Gamble.
a. If Hewlett Packard's beta is 1.2, what is your best guess as to Hewlett Packard's excess return today?
b. If Proctor and Gamble's beta is 0.5, what is your best guess as to P&G's excess return today?
Chapter 7 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 7 - Rate of return The level of the Syldavia market...Ch. 7 - Real versus nominal returns The Costaguana stock...Ch. 7 - Arithmetic average and compound returns Integrated...Ch. 7 - Risk premiums Here are inflation rates and U.S....Ch. 7 - Risk Premium Suppose that in year 2030, investors...Ch. 7 - Stocks vs. bonds Each of the following statements...Ch. 7 - Expected return and standard deviation A game of...Ch. 7 - Standard deviation of returns The following table...Ch. 7 - Average returns and standard deviation During the...Ch. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Diversification Here are the percentage returns on...Ch. 7 - Risk and diversification In which of the following...Ch. 7 - Prob. 14PSCh. 7 - Portfolio risk To calculate the variance of a...Ch. 7 - Portfolio risk a) How many variance terms and how...Ch. 7 - Portfolio risk Table 7.8 shows standard deviations...Ch. 7 - Portfolio risk Hyacinth Macaw invests 60% of her...Ch. 7 - Stock betas What is the beta of each of the stocks...Ch. 7 - Stock betas There are few, if any, real companies...Ch. 7 - Portfolio betas A portfolio contains equal...Ch. 7 - Portfolio betas Suppose the standard deviation of...Ch. 7 - Portfolio risk Here are some historical data on...Ch. 7 - Portfolio risk Suppose that Treasury bills offer a...
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