PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 7, Problem 7PS
Expected return and standard deviation A game of chance offers the following odds and payoffs. Each play of the game costs $100, so the net profit per play is the payoff less $100.
What are the expected cash payoff and expected
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Consider an investment with the following probability distribution:
Probability:
Payoff:
0.40
41.0%
0.40
-6.0
0.20
-20.0
Calculate the expected return. Do not round intermediate calculations. Round your answer to two decimal places. _____%
Calculate the standard deviation. Do not round intermediate calculations. Round your answer to two decimal places. _____%
Calculate the coefficient of variation. Do not round intermediate calculations. Round your answer to two decimal places. _____
A game of chance offers the following odds and payoffs. Each play of the game costs $200, so the net profit per play is the payoff less $200.
Probability
Payoff
Net Profit
0.10
$700
$500
0.50
300
100
0.40
0
–200
a-1. What is the expected cash payoff? (Round your answer to the nearest whole dollar amount.)
a-2. What is the expected rate of return? (Enter your answer as a percent rounded to the nearest whole number.)
b-1. What is the variance of the expected returns? (In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate calculations. Round your answer to the nearest whole number.)
b-2. What is the standard deviation of the expected returns? (Enter your answer as a percent rounded to 2 decimal places.)
A game of chance offers the following odds and payoffs. Each play of the game costs $200, so the net profit per play is the payoff less $200.
Probability
Payoff
Net Profit
0.30
$400
$200
0.60
300
100
0.10
0
–200
1. What is the expected cash payoff?
Note: Round your answer to the nearest whole dollar amount.
2. What is the expected rate of return?
Note: Enter your answer as a percent rounded to the nearest whole number.
1.What is the variance of the expected returns?
Note: In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate calculations. Round your answer to the nearest whole number.
2.hat is the standard deviation of the expected returns?
Note: Enter your answer as a percent rounded to 2 decimal places.
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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- Which one of the following statements is correct? Multiple Choice The risk-free rate of return has a risk premium of 1.0. The reward for bearing risk is called the standard deviation. Risks and expected return are inversely related. The higher the expected rate of return, the wider the distribution of returns. Risk premiums are inversely related to the standard deviation of returns.arrow_forwardAssume the standard deviation of the market return is 0.2, the standard deviation of asset k is 0.45 and the beta of asset k is 0.675. The correlation coefficient between the return from asset k and the return from the market is: A. 0.473 OB. 0.900 OC. No answer OD. 0.290arrow_forwardSuppose you want to establish a bullish spread strategy. The are two call options. The first one has X1=$50 and C1=$5. The second one has X2=$42 and C2=$6. When the underlying asset price is S(t)=$45, what is the profit from the strategy? What is the maximum profit of the strategy? What is the minimum payoff of the strategy?arrow_forward
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