EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Chapter 13, Problem 3P
a.
Summary Introduction
To determine: Whether the market portfolio is still efficient.
Introduction: CAPM is abbreviated as
b.
Summary Introduction
To determine: The stocks with buying opportunities and the stocks with selling opportunities.
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John works for a fixed income hedge fund. Your fund invests in $100 million in mortgage-backed-bonds (MBS) with a duration of 10. He finances these bonds with $2 million in investor capital and $98 million of overnight repurchase agreements (required haircut=2%) with an interest rate of 1%.
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Please provide calculations in excel.
220
6-1. (Expected return and risk) Universal Corporation is planning to invest in a secu- LO1 LO2
rity that has several possible rates of return. Given the following probability distribu-
tion of returns, what is the expected rate of return on the investment? Also, compute
the standard deviations of the returns. What do the resulting numbers represent?
PROBABILITY
0.10
0.20
0.30
RETURN
-10%
5%
0.40
10%
25%
6-2. (Average expected return and risk) Given the holding-period returns shown here,
calculate the average returns and the standard deviations for the Kaifu Corporation Myb
and for the market.
MONTH
1
2
3
KAIFU CORP.
4%
6%
0%
2%
MARKET
2%
3%
1%
-1%
6-3. (Expected rate of return and risk) Carter, Inc. is evaluating a security. Calculate the
investment's expected return and its standard deviation.
PROBABILITY
0.15
RETURN
6%
0.30
9%
0.40
10%
0.15
15%
PART 2 The Valuation of Financial Assets
6-4. (Expected rate of return and risk) Summerville, Inc. is considering an investment in
one of…
6-14. (Expected return, standard deviation, and capital asset pricing model) The following LO5
are the end-of-month prices for both the Standard & Poor's 500 Index and Nike's
common stock.
a. Using the data here, calculate the holding-period returns for each of the months.
NIKE
S&P 500 INDEX
2017
January
$52.90
$2,279
February
57.16
2,364
March
55.73
2,363
April
55.41
2,384
May
52.99
2,412
June
59.00
2,423
July
59.05
2,470
August
52.81
2,472
September
51.85
2,519
October
54.99
2,575
November
60.42
2,648
December
62.55
2,674
2018
January
68.22
2,824
b. Calculate the average monthly return and the standard deviation for both the
S&P 500 and Nike.
222
PART 2 • The Valuation of Financial Assets
c. Develop a graph that shows the relationship between the Nike stock returns
and the S&P 500 Index. (Show the Nike returns on the vertical axis and the
S&P 500 Index returns on the horizontal axis as done in Figure 6-5.)
d. From your graph, describe the nature of the relationship between Nike stock…
Chapter 13 Solutions
EBK CORPORATE FINANCE
Ch. 13.1 - If investors attempt to buy a stock with a...Ch. 13.1 - What is the consequence of investors exploiting...Ch. 13.2 - How can an uninformed or unskilled investor...Ch. 13.2 - Under what conditions will it be possible to earn...Ch. 13.3 - Do investors hold well-diversified portfolios?Ch. 13.3 - Why is the high trading volume observed in markets...Ch. 13.3 - What must be true about the behavior of small,...Ch. 13.4 - What are several systematic behavioral biases that...Ch. 13.4 - Prob. 2CCCh. 13.5 - Prob. 1CC
Ch. 13.5 - Prob. 2CCCh. 13.6 - Prob. 1CCCh. 13.6 - Prob. 2CCCh. 13.7 - Prob. 1CCCh. 13.7 - How can you use the Fama-French-Carhart factor...Ch. 13.8 - Which is the most popular method used by...Ch. 13.8 - Prob. 2CCCh. 13.8 - Prob. 3CCCh. 13 - Assume that all investors have the same...Ch. 13 - Assume that the CAPM is a good description of...Ch. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Explain what the following sentence means: The...Ch. 13 - You are trading in a market in which you know...Ch. 13 - Prob. 8PCh. 13 - Your brother Joe is a surgeon who suffers badly...Ch. 13 - Prob. 11PCh. 13 - Suppose that all investors have the disposition...Ch. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Each of the six firms in the table below is...Ch. 13 - Prob. 20PCh. 13 - In Problem 20, assume the risk-free rate is 3% and...Ch. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Explain why if some investors are subject to...Ch. 13 - Prob. 26PCh. 13 - Prob. 27PCh. 13 - You are currently considering an investment in a...Ch. 13 - Prob. 29P
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