F has 300,000 shares outstanding with a market value of $25 each and no debt. The of F’s equity is 0.9, the risk-free rate is 4% and the expected return of the market portfolio is 9%. F considers the following alternative operation Operation : F buys an asset A worth $2,200,000 (at market value). This purchase is financed by issuing risk-free debt for the same amount. Following the operation, F ’s equity beta increases to 1. Compute the systematic risk A of the asset A bought by F.
F has 300,000 shares outstanding with a market value of $25 each and no debt. The of F’s equity is 0.9, the risk-free rate is 4% and the expected return of the market portfolio is 9%. F considers the following alternative operation Operation : F buys an asset A worth $2,200,000 (at market value). This purchase is financed by issuing risk-free debt for the same amount. Following the operation, F ’s equity beta increases to 1. Compute the systematic risk A of the asset A bought by F.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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F has 300,000 shares outstanding with a market value of $25 each and no debt. The of F’s equity is 0.9, the risk-free rate is 4% and the expected return of the market portfolio is 9%. F considers the following alternative operation
Operation : F buys an asset A worth $2,200,000 (at market value). This purchase is financed by issuing risk-free debt for the same amount. Following the operation, F ’s equity beta increases to 1. Compute the systematic risk A of the asset A bought by F.
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