Fi 515 Week 2

6-1 Investment Beta $35,000 0.8 40,000 1.4 Total $75,000 ($35,000/$75,000)(0.8) + ($40,000/$75,000)(1.4) = 1.12. 6-4 ?r = (0.1)(-50%) + (0.2)(-5%) + (0.4)(16%) + (0.2)(25%) + (0.1)(60%) = 11.40%. ?2 = (-50% - 11.40%)2(0.1) + (-5% - 11.40%)2(0.2) + (16% - 11.40%)2(0.4) + (25% - 11.40%)2(0.2) + (60% - 11.40%)2(0.1) ?2 = 712.44; ?= 26.69%. CV = 11.40%26.69% = 2.34 6-7 a. ri = rRF + (rM - rRF)bi = 9% + (14% - 9%)1.3 = 15.5%. b. 1. rRF increases to 10%: rM increases by 1 parcel of land point, from 14% to 15%. ri = rRF + (rM - rRF)bi = 10% + (15% - 10%)1.3 = 16.5%. 2. rRF decreases to 8%: rM decreases by 1%, from 14% to 13%. ri = rRF + (rM - rRF)bi = 8% + (13% - 8%)1.3 = 14.5%. c. 1. rM increases to 16%: ri = rRF + (rM - rRF)bi = 9% + (16% - 9%)1.3 = 18.1%. 2. rM decreases to 13%: ri = rRF + (rM - rRF)bi = 9% + (13% - 9%)1.3 = 14.2%. 7-7 a. victimisation Excel, the regression equation estimates be: Beta = 0.56; Intercept = 0.037; R2 = 0.96. b. R(Avg) = (-14.0+23.0++18.2)/7 = 10.6% The arithmetic average post of return on the grocery portfolio, determined similarly, is 12.1%. For Stock X, the estimated unbroken deviation is 13.1 percent: ? = 13.1% c. r(RF) = 10.6 6.8 / 0.44 = 8.6% d.

discriminating information on the unhazardous security (bRF = 0, rRF = 8.6%) and Security X (bX = 0.56, Xr = 10.6%) depart the two points with which the SML can be drawn. rM cristal ons a third secondary point. e. In theory, you would be absent-minded between the two stocks. Since they create the same beta, their relevant pretends are identical, and in equilibrium they should leave alone the same returns. The two stocks would be represented by a single point on the SML. Stock Y, with the high example deviation, has more diversifiable risk, but this risk will be eliminated in a well-diversified portfolio, so the food market will compensate the investor until now for bearing market or relevant risk. In practice, it is assertable that Stock Y would direct a slightly higher(prenominal) required...If you want to get a full essay, order it on our website: Ordercustompaper.com

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