Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN: 9781285867977
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 8, Problem 8Q
Summary Introduction
To explain: The effect on required return if the beta is doubled.
Introduction:
Portfolio Beta:
The portfolio beta is a measure of the volatility of the portfolio. It measures how the stock moves in the market. A high portfolio beta shows that securities are more volatile in the price movements while a low beta represents that securities are less volatile in the price movements.
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Students have asked these similar questions
How would I do the same calculation if Beta is 1.2? That would be 1-1.2= -0.2 invested in the money market. How does that make sense?
A firm whose performance is not overly sensitive to economy-wide changes will likely have a beta risk that:
а.
Exceeds 1.
b.
Is less than 1.
Is exactly 1.
с.
d.
Is zero.
A firm whose performance is sensitive to economy-wide changes will likely have a beta risk that:Select one:a. Is less than 1.b. Is zero.c. Exceeds 1.d. Is exactly 1.
Chapter 8 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 8 - Prob. 1QCh. 8 - Prob. 2QCh. 8 - Prob. 3QCh. 8 - Is it possible to construct a portfolio of...Ch. 8 - Stock A has an expected return of 7%, a standard...Ch. 8 - A stock had a 12% return last year, a year when...Ch. 8 - If investors aversion to risk increased, would the...Ch. 8 - Prob. 8QCh. 8 - In Chapter 7, we saw that if the market interest...Ch. 8 - Prob. 1P
Ch. 8 - PORTFOLIO BETA An individual has 35,000 invested...Ch. 8 - REQUIRED RATE OF RETURN Assume that the risk-free...Ch. 8 - EXPECTED AND REQUIRED RATES OF RETURN Assume that...Ch. 8 - BETA AND REQUIRED RATE OF RETURN A stock has a...Ch. 8 - EXPECTED RETURNS Stocks X and Y have the following...Ch. 8 - Prob. 7PCh. 8 - BETA COEFFICIENT Given the following information...Ch. 8 - REQUIRED RATE OF RETURN Stock R has a beta of 1.5,...Ch. 8 - CAPM AND REQUIRED RETURN Bradford Manufacturing...Ch. 8 - CAPM AND REQUIRED RETURN Calculate the required...Ch. 8 - REQUIRED RATE OF RETURN Suppose rRF = 9%, rM = 14%...Ch. 8 - CAPM, PORTFOLIO RISK. AND RETURN Consider the...Ch. 8 - PORTFOLIO BETA Suppose you held a diversified...Ch. 8 - Prob. 15PCh. 8 - CAPM AND PORTFOLIO RETURN You have been managing a...Ch. 8 - PORTFOLIO BETA A mutual fund manager has a 20...Ch. 8 - EXPECTED RETURNS Suppose you won the lottery and...Ch. 8 - EVALUATING RISK AND RETURN Stock X has a 10%...Ch. 8 - REALIZED RATES OF RETURN Stocks A and B have the...Ch. 8 - SECURITY MARKET LINE You plan to invest in the...Ch. 8 - Prob. 22SPCh. 8 - Prob. 23ICCh. 8 - Prob. 1TCLCh. 8 - Prob. 2TCLCh. 8 - Prob. 3TCLCh. 8 - Using Past Information to Estimate Required...Ch. 8 - Prob. 5TCLCh. 8 - Prob. 7TCLCh. 8 - Prob. 8TCL
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Similar questions
- A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.1. a. If the market return increased by 13%, what impact would this change be expected to have on the asset's return? b. If the market return decreased by 9%, what impact would this change be expected to have on the asset's return? c. If the market return did not change, what impact, if any, would be expected on the asset's return? d. Would this asset be considered more or less risky than the market?arrow_forwardConsider the following hypothetical firms with their respective beta ABC- 1 MNO- 0 QRS- 1.2 XYZ- 0.85 i. Which firm has the highest risk? ii. Which firm is risk free? iii. Which firm’s returns will be equal to the market returns? arrow_forwardHow do you use the CAPM model to find the rate of return if you are not given a Beta coefficient? Is it even possible to do so?arrow_forward
- When modeling the expected return of an income producing property, why should it be defined, for example, a correlation of -0.60 between the NOI growth and the vacancy rate? a. To increase the probability that the computer draws higher values of NOI growth when it draws higher values of vacancy, from their respective distributions, and vice versa. b. To increase the probability that the computer draws lower values of NOI growth when it draws lower values of vacancy, from their respective distributions, and vice versa. c. To increase the probability that the computer draws lower values of NOI growth when it draws higher values of vacancy, from their respective distributions, and vice versa. d. Both “b” and “c” e. To increase the probability that the computer draws NOI growth values that are 60% as large as the vacancy values.arrow_forwardSuppose the beta coefficient of a stock doubles from B1= 1.0 to B2=2.0. Logic says that the required rate of return on the stock should also double, Is this correct?arrow_forward“If the business cycle is predictable, and a stock has a positive beta, the stock’s returns also must be predictable.” Respond.arrow_forward
- What does a share’s beta of 1.5 mean? Is this share more or less volatile than the market? Explain your answer.arrow_forwardSuppose that there is a constant technological progress (A) and population growth (n) in a sample economy. Production function is given as Y; = F(Kt, N¿) = A /K/N; a) What is the level of saving rate that maximizes consumption at the steady state?arrow_forwardA greater Beta suggests investors will require a ________return.arrow_forward
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