CORPORATE FINANCE--CONNECT ACCESS CARD
CORPORATE FINANCE--CONNECT ACCESS CARD
12th Edition
ISBN: 9781264807475
Author: Ross
Publisher: MCG CUSTOM
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Chapter 12, Problem 5QAP
Summary Introduction

Adequate information:

Beta 1 of Portfolio A β1PA = 0.85

Beta 2 of Portfolio A β2PA = 1.15

Expected return of Portfolio A ERPA = 16%

Beta 1 of Portfolio B β1PB = 1.45

Beta 2 of Portfolio B β2PB = -0.25

Expected return of Portfolio B ERPB = 12%

Risk-free rate Rf = 4%

To compute: Risk premiums

Introduction: Risk premium refers to the compensation made to the investors in lieu of the excess risk bear by them.

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