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 put 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. employ 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 count of return on the market portfolio, determined similarly, is 12.1%. For Stock X, the estimated continuous deviation is 13.1 percent: ? = 13.1% c. r(RF) = 10.6 6.8 / 0.44 = 8.6% d.

selective information on the risk of infection-free security (bRF = 0, rRF = 8.6%) and Security X (bX = 0.56, Xr = 10.6%) depart the two points through with(predicate) which the SML can be drawn. rM choke ons a third ground point. e. In theory, you would be oblivious between the two stocks. Since they establish the same beta, their relevant risks be identical, and in equilibrium they should deliver the goods the same returns. The two stocks would be represented by a single point on the SML. Stock Y, with the high ideal deviation, has more diversifiable risk, but this risk will be eliminated in a well-diversified portfolio, so the market will compensate the investor nevertheless for bearing market or relevant risk. In practice, it is assertable that Stock Y would leave a slightly high required...If you want to get a full essay, order it on our website: Orderessay

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