The expected performance is affected. Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

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Chapter 8, Problem 19PS

Summary Introduction

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

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The common shares of Almond Beach Inc, have a beta of 0.75, offer areturn of 9%, and have an historical standard deviation of return of17%. Alternatively, the common shares of Palm Beach Inc. have a betaof 1.25, offer a return of 10%, and have an historical standarddeviation of return of 13%. Both firms have a marginal tax rate of37%. The risk-free rate of return is 3% and the expected rate ofreturn on the market portfolio is 9½%.1. Which company would a well-diversified investor prefer to investin? Explain why and show all calculations.2. Which company Would an investor who can invest in the shares ofonly one firm prefer to invest in? Explain why.

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Question

Chapter 8, Problem 19PS

Summary Introduction

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

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Question

Chapter 8, Problem 19PS

Summary Introduction

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

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Answer 4

Question

Chapter 8, Problem 19PS

Summary Introduction

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

Expert Solution & Answer

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Answer 5

Chapter 8, Problem 19PS

Summary Introduction

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

Answer 6

Chapter 8, Problem 19PS

Summary Introduction

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

Answer 7

Chapter 8, Problem 19PS

Summary Introduction

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

Answer 8

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Ch. 8 - Prob. 1PS Ch. 8 - Prob. 2PS Ch. 8 - Prob. 3PS Ch. 8 - Prob. 4PS Ch. 8 - Prob. 5PS Ch. 8 - Prob. 6PS Ch. 8 - Prob. 7PS Ch. 8 - Prob. 8PS Ch. 8 - Prob. 9PS Ch. 8 - Prob. 10PS

The expected performance is affected. Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

Solution Summary: The author explains that high risk portfolios are made up of more than 70% of equities, and the expected performance should be improved by increasing the square ratio.

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

Want to see the full answer?

Chapter 8 Solutions

The expected performance is affected. Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

Solution Summary: The author explains that high risk portfolios are made up of more than 70% of equities, and the expected performance should be improved by increasing the square ratio.

To determine: The expected performance is affected. Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.

Want to see the full answer?

Chapter 8 Solutions

To determine: The expected performance is affected.

Introduction: During the constructing of portfolio, the investor always focuses on to reduce risks. High risk portfolio is being made up of more than 70% of equities.