Pratik Jog - Chapter 8 Home

Problem 1

Stocks expected return 11.40% ∑PR = 0.114

Standard Deviation 26.69% √∑ P (R - E (R))^2 = √0.071244 = 0.2669

Coefficient of Variation 2.34 0.2669/0.114 = 2.34

Problem 4

Required Return of overall

stock market 11% 5 + 6
Required Return of (1.2) 12.20%  5 + 1.2(6)

Problem 5
11 = 7 + 4 Beta, 11 - 7 = 4 Beta, 4 = 4
(a) 1 Beta, Beta = 1
(b) 13% 7% + 6% × 1 = 13%

Problem 8

12.5% = 4.5% + Beta(10.5% - 4.5%),

Beta Coefficiet for Stock J 1.33 Beta(6%) = 8%, Beta = 1.33
og - Chapter 8 Homework
Problem 12

R^i = rRF + bi x (rM – rRF) R^i = 9% + 1.3 x

(14% - 9%) R^i = 9% + 1.3 x 5% =R^i =
(a) 15.50% 15.5%

rRF = 10%ri = 10% + 1.3 x 5% = 16.5%, rRF

(b) 14.50% = 8%ri = 8% + 1.3 x 5% = 14.5%

rRF = 9%, rM = 16%R^i = 9% + 1.3 x (16% -

9%) = 18.1%, rRF = 9%, rM = 13%R^i = 9%
(c) 14.20% + 1.3 x (13% - 9%) = 14.2%

Problem 15
Required 0.045 +(0.105-0.045)1.8=.153 or 15.3% ,
Returns 0.045 +(0.105-0.045).6= 0.081 or 8.1% ,
difference  7.2% 15.3-8.1= 7.2%

Problem 17
Average Beta 1.73

Problem 21
(a) ri= 6% + 5%bi
(b) 15%

(c) 16%