PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 8, Problem 1PS
Efficient portfolios For each of the following pairs of investments, state which would always be preferred by a rational investor (assuming that these are the only investments available to the investor):
- a. Portfolio A, r = 18% σ = 20%; portfolio B, r = 14% σ = 20%.
- b. Portfolio C, r = 15% σ = 18%; portfolio D, r = 13% σ = 8%.
- c. Portfolio E, r = 14% σ = 16%; portfolio F, r = 14% σ = 10%.
Expert Solution
Summary Introduction
To discuss: Whether portfolio A or B most preferable for a rational investor
Explanation of Solution
Portfolio A : Investors prefer maximum return at a given level of risk.
Expert Solution
Summary Introduction
To discuss: Whether portfolio C or D most preferable for a rational investor
Explanation of Solution
Portfolio C : Investors prefer maximum return at a given level of risk.
Expert Solution
Summary Introduction
To discuss: Whether portfolio D or E most preferable for a rational investor
Explanation of Solution
Portfolio D: Investors prefer maximum return per unit of risk.
Expert Solution
Summary Introduction
To discuss: Whether portfolio E or F most preferable for a rational investor
Explanation of Solution
Portfolio F: Investors prefer low risk given a stated rate of return.
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Students have asked these similar questions
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comment please i will write values.
Assume that the following statements of financial position are stated and a book value.
Alpha Corporation
Current Assets
$15,000
Current Liabilities
$5,400
Net Fixed Assets
39,000
Long-Term Debt
10,100
Equity
38,500
$54,000
$54,000
Beta Corporation
Current Assets
$3,600
Current Liabilities
$1,400
Net Fixed Assets
6,700
Long-Term Debt
2,100
Equity
6,800
$10,300
$10,300
Suppose the fair market value of Beta’s fixed assets is $9,500 rather than the $6,700 book value shown. Alpha pays $17,300 for Beta and raises the needed funds through an issue of long-term debt. Construct the post-merger statement of financial position now, assuming that the purchase method of accounting is used.
The shareholders of Barley Corporation have voted in favor of a buyout offer from Wheat Corporation. Information about each firm is given here:
Barley
Wheat
Price/earnings ratio
13.5
21
Shares outstanding
90,000
210,000
Earnings
$180,000
$810,000
Barley shareholders will receive one share of Wheat stock for every three shares they hold of Barley.
Required
What will the EPS of Wheat be after the merger? What will be the P/E ratio if the NPV of the acquisition is 0?
What must Wheat feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover?
Chapter 8 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 8 - Efficient portfolios For each of the following...Ch. 8 - Efficient portfolios Figure 8.11 purports to show...Ch. 8 - Portfolio risk and return Look back at the...Ch. 8 - Portfolio risk and return Mark Harrywitz proposes...Ch. 8 - Portfolio risk and return Ebenezer Scrooge has...Ch. 8 - Portfolio risk and return Here are returns and...Ch. 8 - Portfolio risk and return Percival Hygiene has IO...Ch. 8 - Sharpe ratio Use the long-term data on security...Ch. 8 - Portfolio beta Refer to Table 7.5. a. What is the...Ch. 8 - CAPM True or false? Explain or qualify as...
Ch. 8 - CAPM True or false? a. The CAPM implies that if...Ch. 8 - CAPM Suppose that the Treasury bill rate is 6%...Ch. 8 - CAPM The Treasury bill rate is 4%, and the...Ch. 8 - Cost of capital Epsilon Corp. is evaluating an...Ch. 8 - APT Consider a three-factor APT model. The factors...Ch. 8 - Prob. 18PSCh. 8 - APT Consider the following simplified APT model:...Ch. 8 - Prob. 20PSCh. 8 - Three-factor modelThe following table shows the...Ch. 8 - Efficient portfolios Look again at the set of the...
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