Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for …
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Chapter 7, Problem 21PS

Portfolio risk Here are some historical data on the risk characteristics of Bank of America and Starbucks:

Chapter 7, Problem 21PS, Portfolio risk Here are some historical data on the risk characteristics of Bank of America and

Assume the standard deviation of the return on the market was 23.0%.

  1. a. The correlation coefficient of Bank of America’s return versus Starbucks is .30. What is the standard deviation of a portfolio invested half in each share?
  2. b. What is the standard deviation of a portfolio invested one-third in Bank of America, one-third in Starbucks, and one-third in risk-free Treasury bills?
  3. c. What is the standard deviation if the portfolio is split evenly between Bank of America and Starbucks and is financed at 50% margin, that is, the investor puts up only 50% of the total amount and borrows the balance from the broker?
  4. d. What is the approximate standard deviation of a portfolio composed of 100 stocks with betas of 1.57 like Bank of America? How about 100 stocks like Starbucks? (Hint: Part (d) should not require anything but the simplest arithmetic to answer.)
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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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Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY