Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 7, Problem 14PS
Portfolio risk* Hyacinth Macaw invests 60% of her funds in stock I and the balance in stock J. The standard deviation of returns on I is 10%, and on J it is 20%. Calculate the variance and standard deviation of portfolio returns, assuming
- a. The correlation between the returns is 1.0.
- b. The correlation is .5.
- c. The correlation is 0.
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Hyacinth Macaw invests 50% of her funds in stock I and the balance in stock J. The standard deviation of returns on I is 15%, and on J it
is 20%.
Note: Use decimals, not percents, in your calculations.
a. Calculate the variance and standard deviation of portfolio returns, assuming the correlation between the returns is 1.
b. Calculate the variance and standard deviation of portfolio returns, assuming the correlation is 0.3.
c. Calculate the variance and standard deviation of portfolio returns, assuming the correlation is 0.
Note: For all requirements, do not round intermediate calculations. Round your answers to 4 decimal places.
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An investiment portfolio consists of two securities, X and Y. The weight of X is 30%.
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Asset Y's expected return is 23% and the standard deviation is 33%.
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A. Calcualte the expected return of the portfolio.
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Suppose the total risk of Portfolios A, B and C are 49% ², 64%² and 100% ² respectively. The market
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(c) Is Portfolio C a Market Portfolio as it has same level of total risk (i.e. 100% 2) as the Market
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Chapter 7 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 7 - Expected return and standard deviation A game of...Ch. 7 - Standard deviation of returns The following table...Ch. 7 - Average returns and standard deviation During the...Ch. 7 - Portfolio risk True or false? a. Investors prefer...Ch. 7 - Risk and diversification In which of the following...Ch. 7 - Portfolio risk To calculate the variance of a...Ch. 7 - Portfolio betas Suppose the standard deviation of...Ch. 7 - Portfolio betas A portfolio contains equal...Ch. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Stocks vs. bonds Each of the following statements...Ch. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Portfolio risk Hyacinth Macaw invests 60% of her...Ch. 7 - Portfolio risk a) How many variance terms and how...Ch. 7 - Portfolio risk Table 7.9 shows standard deviations...Ch. 7 - Portfolio risk Your eccentric Aunt Claudia has...Ch. 7 - Stock betas There are few, if any, real companies...Ch. 7 - Portfolio risk You can form a portfolio of two...Ch. 7 - Portfolio risk Here are some historical data on...Ch. 7 - Portfolio risk Suppose that Treasury bills offer a...Ch. 7 - Beta Calculate the beta of each of the stocks in...
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