Fundamentals of Corporate Finance (3rd Edition) (Pearson Series in Finance)
3rd Edition
ISBN: 9780133507676
Author: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Publisher: PEARSON
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Chapter 11, Problem 11CT
If you randomly select 10 stocks for a portfolio and 20 other stocks for a different portfolio, which portfolio is likely to have the lower standard deviation? Why?
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Chapter 11 Solutions
Fundamentals of Corporate Finance (3rd Edition) (Pearson Series in Finance)
Ch. 11 - Prob. 1CCCh. 11 - Why do investors demand a higher return when...Ch. 11 - For what purpose do we use the average and...Ch. 11 - How does the standard deviation of historical...Ch. 11 - What is the relation between risk and return for...Ch. 11 - Prob. 6CCCh. 11 - Prob. 7CCCh. 11 - Prob. 8CCCh. 11 - Prob. 9CCCh. 11 - Does systematic or unsystematic risk require a...
Ch. 11 - What does the historical relation between...Ch. 11 - What are the components of a stock's realized...Ch. 11 - What is the intuition behind using the average...Ch. 11 - Prob. 4CTCh. 11 - How does the relationship between the average...Ch. 11 - Consider two local banks. Bank A has 100 loans...Ch. 11 - What is meant by diversification and how does it...Ch. 11 - Which of the following risks of a stock are likely...Ch. 11 - Prob. 9CTCh. 11 - Prob. 10CTCh. 11 - If you randomly select 10 stocks for a portfolio...Ch. 11 - Why doesn't the risk premium of a stock depend on...Ch. 11 - Prob. 13CTCh. 11 - DATA CASE Today is April 30, 2016, and you have...Ch. 11 - Convert these prices to monthly returns as the...Ch. 11 - Prob. 3DCCh. 11 - Prob. 4DCCh. 11 - Prob. 5DCCh. 11 - What do you notice about the average of the...Ch. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Your portfolio consists of 100 shares of CSH and...Ch. 11 - You have just purchased a share of stock for $20....Ch. 11 - The following table contains prices and dividends...Ch. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Use the data in SBUX_GOOG.xlsx on MFL to answer...Ch. 11 - Download the spreadsheet from the book's Web the...Ch. 11 - Prob. 11PCh. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Consider the following five monthly returns: a....Ch. 11 - Explain the difference between the arithmetic...Ch. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - You are a risk-averse investor who is considering...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Suppose our portfolio consists of two stocks A and B. What should be the correlation between them so that we have no risk in our portfolio?arrow_forwardMean returns for portfolios are calculated by taking the weighted average of the mean returns for each investment in the portfolio. Why won’t this approach work calculate the standard deviation of portfolio returns?arrow_forwardWhat are the the key concepts (e.g., the standard deviation of the portfolio is less than the weighted average of the standard deviations of the stocks in the portfolio)arrow_forward
- You have a portfolio that is equally invested in Stock F with a beta of 1.15, Stock G with a beta of 1.52, and the risk-free asset. What is the beta of your portfolio? How do I solve this?arrow_forwardRefer to the following observations for stock A and the market portfolio in the table: b) Draw in the characteristic line of the stock A and give the interpretation - what does it show for the investor? c) Calculate the sample residual variance associated with stock’s A characteristic line and explain how the investor would interpret the number of this statistic. d) Do you recommend this stock for the investor with the lower tolerance of risk?arrow_forwardIn a portfolio with three different stocks, which of the following could not be true? Select one: a. The beta of the portfolio is less than the beta of each of the individual stocks. b. The riskiness of the portfolio is greater than the riskiness of one or two of the stocks. c. The riskiness of the portfolio is less than the riskiness of each stock held in isolation. d. The beta of the portfolio is greater than the beta of one or two of the individual stocks e. The beta of the portfolio is equal to the beta of one of the individual stocksarrow_forward
- Suppose the index model for stocks A and B is estimated with the following results:rA = 2% + 0.8RM + eA, rB = 2% + 1.2RM + eB , σM = 20%, and RM = rM − rf . The regressionR2 of stocks A and B is 0.40 and 0.30, respectively.(a) What is the variance of each stock? (b) What is the firm-specific risk of each stock? (c) What is the covariance between the two stocks?arrow_forwardWhich of the following is most likely to be true for a portfolio of 40 randomly selected stocks? a. The riskiness of the portfolio is the same as the riskiness of each stock if it was held in isolation. b. The beta of the portfolio is less than the average of the betas of the individual stocks. c. The beta of the portfolio is equal to the average of the betas of the individual stocks. d. The beta of the portfolio is larger than the average of the betas of the individual stocks. e. The riskiness of the portfolio is greater than the riskiness of each of the stocks if each was held in isolation.arrow_forward(Singular) Suppose there are two stocks that are uncorrelated. Each of these has variance of 1, and there are expected returns are 7₁ and 72, respectively. The risk-free rate is rf. Find the portfolio of weights w₁ and w2 for the Markowitz (market) portfolio. Show that for some value of rf there is no Markowitz portfolio.arrow_forward
- You have chosen a stock for your two-asset portfolio and you need to choose one more stock. Which of the following stocks minimizes the risk of your two-asset portfolio? Stock 1 with a covariance of 3,411 Stock 2 with a correlation coefficient of -0.62 O Stock 3 with a correlation coefficient of -0.17 Stock 4 with a covariance of 1,100 O Stock 5 with a correlation coefficient of 0.66arrow_forwardConsider a risky portfolio, A, with an expected rate of return of 0.16 and a standard deviation of 0.25, that lies on a given indifference curve. Which one of the following portfolios is not likely to lie on the same indifference curve for a risk-averse investor with a mean- variance utility function? a. Expected return = 0.20; Standard deviation = 0.15 b. Expected return = 0.10; Standard deviation = 0.20 Expected return= 0.15; Standard deviation = 0.20 Expected return = 0.12; Standard deviation = 0.10 Expected return = 0.10; Standard deviation = 0.10 C. d. e.arrow_forward)If you are asked to construct your own portfolio by using information about the individual stocks in the excel spreadsheet, are there any stocks which you should not include in your portfolio? Can you provide your justifications? (You may draw performance graphs of one stock against the market portfolio).arrow_forward
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