PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 8, Problem 11PS
Portfolio beta Refer to Table 7.5.
- a. What is the beta of a portfolio that has 40% invested in ExxonMobil and 60% in Newmont?
- b. Would you invest in this portfolio if you had no superior information about the prospects for these stocks? Devise an alternative portfolio with the same expected return and less risk.
- c. Now repeat parts (a) and (b) with a portfolio that has 40% invested in Travelers and 60% in Amazon.
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(Portfolio beta and CAPM) You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings:
a. What is the beta on each portfolio?
b. Which portfolio is riskier?
c. If the risk-free rate of interest were 4.5 percent and the market risk premium were 7 percent, what rate of return would you expect to earn from each of the portfolios?
a. The beta on the first portfolio is
Data table
Asset
A
AB
C
D
(Click on the icon
(Round to three decimal places.)
Portfolio Weightings
Print
Beta
2.30
0.90
0.55
- 1.30
in order to copy its contents into a spreadsheet.)
First Portfolio
12%
12%
38%
38%
Done
Second Portfolio
38%
38%
12%
12%
I
X
(Portfolio beta and CAPM) You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings:
LOADING...
.
a. What is the beta on each portfolio?
b. Which portfolio is riskier?
c. If the risk-free rate of interest were
5
percent and the market risk premium were
6
percent,
what rate of return would you expect to earn from each of the portfolios?
Portfolio Weightings
Asset
Beta
First Portfolio
Second Portfolio
A
2.20
12%
38%
B
0.95
12%
38%
C
0.60
38%
12%
D
−1.80
38%
12%
Suppose you are the money manager of a P4.0 investment portfolio consists of stocks with the following investment and betas:
Stock
Beta
S
1.5
T
(0.50)
A
1.25
R
0.75
If the market required return is 14% and the risk free rate is 6%,a) What is the portfolio beta?b) What is the portfolio required rate of return?
Chapter 8 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 8 - Efficient portfolios For each of the following...Ch. 8 - Efficient portfolios Figure 8.11 purports to show...Ch. 8 - Portfolio risk and return Look back at the...Ch. 8 - Portfolio risk and return Mark Harrywitz proposes...Ch. 8 - Portfolio risk and return Ebenezer Scrooge has...Ch. 8 - Portfolio risk and return Here are returns and...Ch. 8 - Portfolio risk and return Percival Hygiene has IO...Ch. 8 - Sharpe ratio Use the long-term data on security...Ch. 8 - Portfolio beta Refer to Table 7.5. a. What is the...Ch. 8 - CAPM True or false? Explain or qualify as...
Ch. 8 - CAPM True or false? a. The CAPM implies that if...Ch. 8 - CAPM Suppose that the Treasury bill rate is 6%...Ch. 8 - CAPM The Treasury bill rate is 4%, and the...Ch. 8 - Cost of capital Epsilon Corp. is evaluating an...Ch. 8 - APT Consider a three-factor APT model. The factors...Ch. 8 - Prob. 18PSCh. 8 - APT Consider the following simplified APT model:...Ch. 8 - Prob. 20PSCh. 8 - Three-factor modelThe following table shows the...Ch. 8 - Efficient portfolios Look again at the set of the...
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