Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 11, Problem 12P
Suppose Avon and Nova stocks have volatilities of 50% and 25%, respectively, and they are perfectly negatively correlated. What portfolio of these two stocks has zero risk?
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Suppose Avon and Nova stocks have volatilities of
49% and 25%, respectively, and they are perfectly negatively correlated. What portfolio of these two stocks has zero risk?
The portfolio of these two stocks that has zero risk is. __% of Avon and __% of Nova. (Round to two decimal places.)
Suppose Avon and Nova stocks have volatilities of 49% and 24%, respectively, and they are perfectly negatively
correlated. What portfolio of these two stocks has zero risk?
The portfolio of these two stocks that has zero risk is
% of Avon and % of Nova. (Round to two decimal places.)
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52%
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22%
, respectively, and they are perfectly negatively correlated. What portfolio of these two stocks has zero risk? The portfolio of these two stocks that has zero risk is
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Chapter 11 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CCCh. 11.3 - Prob. 2CCCh. 11.4 - Prob. 1CCCh. 11.4 - Prob. 2CCCh. 11.4 - Prob. 3CCCh. 11.5 - What do we know about the Sharpe ratio of the...
Ch. 11.5 - If investors are holding optimal portfolios, how...Ch. 11.6 - When will a new investment improve the Sharpe...Ch. 11.6 - Prob. 2CCCh. 11.7 - Prob. 1CCCh. 11.7 - Prob. 2CCCh. 11.8 - Prob. 1CCCh. 11.8 - According to the CAPM, how can we determine a...Ch. 11 - You are considering how to invest part of your...Ch. 11 - You own three stocks: 600 shares of Apple...Ch. 11 - Consider a world that only consists of the three...Ch. 11 - There are two ways to calculate the expected...Ch. 11 - Using the data in the following table, estimate...Ch. 11 - Use the data in Problem 5, consider a portfolio...Ch. 11 - Using your estimates from Problem 5, calculate the...Ch. 11 - Prob. 8PCh. 11 - Suppose two stocks have a correlation of 1. If the...Ch. 11 - Arbor Systems and Gencore stocks both have a...Ch. 11 - Prob. 11PCh. 11 - Suppose Avon and Nova stocks have volatilities of...Ch. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 16PCh. 11 - What is the volatility (standard deviation) of an...Ch. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Suppose Ford Motor stock has an expected return of...Ch. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - A hedge fund has created a portfolio using just...Ch. 11 - Consider the portfolio in Problem 27. Suppose the...Ch. 11 - Prob. 29PCh. 11 - Prob. 30PCh. 11 - You have 10,000 to invest. You decide to invest...Ch. 11 - Prob. 32PCh. 11 - Prob. 33PCh. 11 - Prob. 34PCh. 11 - Prob. 35PCh. 11 - Prob. 36PCh. 11 - Assume all investors want to hold a portfolio...Ch. 11 - In addition to risk-free securities, you are...Ch. 11 - You have noticed a market investment opportunity...Ch. 11 - Prob. 40PCh. 11 - When the CAPM correctly prices risk, the market...Ch. 11 - Prob. 45PCh. 11 - Your investment portfolio consists of 15,000...Ch. 11 - Suppose you group all the stocks in the world into...Ch. 11 - Prob. 48PCh. 11 - Consider a portfolio consisting of the following...Ch. 11 - Prob. 50PCh. 11 - What is the risk premium of a zero-beta stock?...
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- Which of the following statements is CORRECT? a. The slope of the Security Market Line is beta. b. Any stock with a negative beta must in theory have a negative required rate of return, provided rRF is positive. c. If a stock's beta doubles, its required rate of return must also double. d. If a stock's returns are negatively correlated with returns on most other stocks, the stock's beta will be negative. e. If a stock has a beta of to 1.0, its required rate of return will be unaffected by changes in the market risk premium.arrow_forwardStock A has a beta = 0.8, while Stock B has a beta = 1.6. Which of the following statements is CORRECT? a. If the marginal investor becomes more risk averse, the required return on Stock B will increase by more than the required return on Stock A. b. An equally weighted portfolio of Stocks A and B will have a beta lower than 1.2. c. If the marginal investor becomes more risk averse, the required return on Stock A will increase by more than the required return on Stock B. d. If the risk-free rate increases but the market risk premium remains constant, the required return on Stock A will increase by more than that on Stock B. e. Stock B's required return is double that of Stock A's.arrow_forwardSuppose CAPM is true. You are considering investing in an equally weighted portfolio of two stocks, A and B. The betas of these stocks to the market factor are 1.10 and 0.80, respectively. The total return volatilities of stocks A and B are σA=0.20 and σB=0.18, and the standard deviation of the factor’s return is 0.15. 1.b. What is the portfolio’s systematic risk (stated as a variance)? 1.c. What is your portfolio’s total risk (stated as a variance), assuming the idiosyncratic risks of the stocks A and B are uncorrelated? Answer: 1a) 0.95 1b) systematic risk 0.0203 1c) total risk 0.0181 Can anyone help to double confirm the answers? plus question part c seems to be wrong but I don't know why.arrow_forward
- The expected return and standard deviation of Stock A are 12% and 24%, respectively. The expected return and standard deviation of Stock B are 5% and 19%, respectively. The correlation between the two stocks is 0.4. The risk-free rate in the economy is 1%. A. What is the Sharpe ratio for Stock A and Stock B? Show your calculation steps briefly and clearly. B. Calculate the optimal risky portfolio P*. You do not need to show your calculation steps for this subquestion. C. Now suppose that the correlation between the two stocks is -0.2 (instead of 0.4). Re-calculate the optimal risky portfolio P* and compare it to your answer in Part B. What do you observe? You do not need to show your calculation steps for this subquestion. D. Using the results above, briefly explain why investors might still consider investing in stocks with a (relatively) low Sharpe ratio as a part of their portfolio.arrow_forwardThe covariance between stocks A and B is 0.0014, the standard deviation of stock A is 0.032, and the standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why?arrow_forwardtrue or falsearrow_forward
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