Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134408897
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 11, Problem 47P
Suppose you group all the stocks in the world into two mutually exclusive portfolios (each stock is in only one portfolio): growth stocks and value stocks. Suppose the two portfolios have equal size (in terms of total value), a correlation of 0 5, and the following characteristics:
| Expected Return | Volatility | |
| Value Stocks | 13% | 12% |
| Growth Stocks | 17% | 25% |
The risk-free rate is 2%.
- a. What is the expected return and volatility of the market portfolio (which is a 50-50 combination of the two portfolios)?
- b. Does the
CAPM hold in this economy? (Hint: Is themarket portfolio efficient ?)
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Suppose you group all the stocks in the world into two mutually exclusive portfolios (each stock is in only one portfolio): growth stocks and value stocks. Suppose the two portfolios have equal size (in terms of total value), a correlation of 0.5, and the following characteristics:
Expected Return
volatility
Value stock
15%
14%
Growth stock
16%
20%
The risk-free rate is 3%.
What is the expected return and volatility of the market portfolio (which is a 50–50 combination of the two portfolios)?
Does the CAPM hold in this economy? (Hint: Is the market portfolio efficient?)
*Please answer B and C / show full un-rounded answer..
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio): growth stocks and value stocks. Assume that these two portfolios are equal in size (market value), the correlation of their returns is equal to 0.6, and the portfolios have the following characteristics:
Expected
Return
Volatility
Value Stocks
0.12
14%
Growth Stocks
0.15
24%
The risk free rate is 3.5%. what is the sharpe ratio?
Chapter 11 Solutions
Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
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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