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 12, Problem 5P
Using the data in Problem 4, suppose you are holding a market portfolio, and have invested $12,000 in Stock C.
- a. How much have you invested in Stock A?
- b. How many shares of Stock B do you hold?
- c. If the price of Stock C suddenly drops to $4 per share, what trades would you need to make to maintain a market portfolio?
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Students have asked these similar questions
Suppose the market risk premium is 6% and the risk-free interest rate is 6%. Using the data in the table, calculate the expected return of investing in
a. Starbucks' stock.
b. Hershey's stock.
c. Autodesk's stock.
Why don't all investors hold Autodesk's stock rather than Hershey's stock
Consider a world that only consists of the three stocks shown in the following table:
a. Calculate the total value of all shares outstanding currently.
b. What fraction of the total value outstanding does each stock make up?
c. You hold the market portfolio, that is, you have picked portfolio weights equal to the answer
the total value of all stocks. What is the expected return of your portfolio?
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Total Number
Current Price per
of Shares Outstanding
Share
Stock
First Bank
Fast Mover
Funny Bone
107 million
46 million
207 million
$111
$120
$30
part with each stock's weight is equal to its contribution to the fraction of
Expected Return
17%
11%
16%
X
Question:
You are an investment advisor. You currently own two stocks, A and B, with the following characteristics:
Expected Return
Beta
X
10%
0.8
Y
16%
1.5
The current risk-free rate is 2 percent, and the expected return on the market is 12 percent. How would you change your holdings of the two stocks (i.e., for each, would you sell or buy more)? Show your calculations (and explain).
Stock A:
Stock B:
Chapter 12 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 12.1 - According to the CAPM, we can determine the cost...Ch. 12.1 - What inputs do we need to estimate a firms equity...Ch. 12.2 - How do you determine the weight of a stock in the...Ch. 12.2 - Prob. 2CCCh. 12.2 - Prob. 3CCCh. 12.3 - How can you estimate a stocks beta from historical...Ch. 12.3 - How do we define a stocks alpha, and what is its...Ch. 12.4 - Why does the yield to maturity of a firms debt...Ch. 12.4 - Prob. 2CCCh. 12.5 - What data can we use to estimate the beta of a...
Ch. 12.5 - Prob. 2CCCh. 12.6 - Why might projects within the same firm have...Ch. 12.6 - Under what conditions can we evaluate a project...Ch. 12.7 - Prob. 1CCCh. 12.7 - Prob. 2CCCh. 12 - Prob. 1PCh. 12 - Suppose the market portfolio has an expected...Ch. 12 - Prob. 3PCh. 12 - Suppose all possible investment opportunities in...Ch. 12 - Using the data in Problem 4, suppose you are...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Suppose that in place of the SP 500, you wanted to...Ch. 12 - Prob. 9PCh. 12 - You need to estimate the equity cost or capital...Ch. 12 - In mid-2012, Ralston Purina had AA-rated, 10-year...Ch. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Your firm is planning to invest in an automated...Ch. 12 - Consider the setting of Problem 18. You decided to...Ch. 12 - Prob. 20PCh. 12 - In mid-2015, Cisco Systems had a market...Ch. 12 - Weston Enterprises is an all-equity firm with two...Ch. 12 - Prob. 24PCh. 12 - Your company operates a steel plant. On average,...Ch. 12 - Prob. 26PCh. 12 - You would like to estimate the weighted average...
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