a.
Adequate information:
Standard deviation (σ) for both markets = 10%
Expected return on every security in both markets = 10%
Beta factor in the first market (ß1) = 1.5
Beta factor in the second market (ß2) = 0.5
The return for each security, i, in the first market =
The return for each security, j, in the second market =
To compute: The market that would be preferred by risk-averse to invest.
Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.
b.
Adequate information:
Standard deviation (σ) for both markets = 10%
Expected return on every security in both markets = 10%
Beta factor in the first market (ß1) = 1.5
Beta factor in the second market (ß2) = 0.5
The return for each security, i, in the first market =
The return for each security, j, in the second market =
To compute: The market that would be preferred by risk-averse to invest.
Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.
c.
Adequate information:
Standard deviation (σ) for both markets = 10%
Expected return on every security in both markets = 10%
Beta factor in the first market (ß1) = 1.5
Beta factor in the second market (ß2) = 0.5
The return for each security, i, in the first market =
The return for each security, j, in the second market =
To compute: The market that would be preferred by risk-averse to invest.
Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.
d.
Adequate information:
Standard deviation (σ) for both markets = 10%
Expected return on every security in both markets = 10%
Beta factor in the first market (ß1) = 1.5
Beta factor in the second market (ß2) = 0.5
The return for each security, i, in the first market =
The return for each security, j, in the second market =
To compute: The relationship between the correlation where the risk-averse person is indifferent.
Introduction: A risk-averse person is indifferent between the two markets when the risk of both markets is equal.

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Chapter 12 Solutions
CORPORATE FINANCE ACCESS CARD
- You are thinking of investing in Tikki's Torches, Inc. You have only the following information on the firm at year-end 2008: Net income $520,000 Total debt $12.2 million Debt ratio 42% What is Tikki's ROE for 2008? a. 1.79% b. 10.14% c. 3.09% d. 4.26%arrow_forwardQuestion about tikki'sarrow_forwardTopic is about method of converting..arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
