Problem 7-21, Stock Betas
Principles of Corporate Finance
Brealey, Myers, and Allen
13th Edition
Determine the beta of each of the stocks given a table of stock returns and the market returns.
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Determine the beta of each of the stocks given a table of stock returns and the market returns.
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Given the standard deviation of the market… find the beta using the standard deviation or find the standard deviation given the beta for a well-diversified portfolio. For the last part, they ask you about the beta of a poorly diversified portfolio given its standard deviation.
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Given the beta and standard deviation of return for two different companies along with the standard deviation of the market… determine the standard deviation of the portfolio given different weights of investment on each stock.
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Given pairs of investments… choose the preferred portfolio for the rational investor based on risk and return characteristics.
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Given the percent invested in stock along with the expected return and standard deviation for both stocks and ask you to find the standard deviation and expected return for the portfolio. Then they ask how it would change with different correlations and whether the investor is better off investing in the portfolio as opposed to just stock A.
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Determine how Percival can improve upon his corporate bond portfolio by investing in an index fund, treasuries, and a combination of bonds and the index was given a correlation between the two.
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Given a list of stocks and their betas along with the interest rate and market return… determine the expected return for one of them, the highest return, the lowest return, and how they would be affected by changing interest rates.
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Given the cash flows, beta, risk-free rate, and expected return… determine the NPV of the project.
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Given the market value of the common stock, total value of debt, the beta of the stock, the expected risk premium, and the treasury bill rate… determine the required return, cost of capital, the discount rate, and the required return given a new beta.
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Given the beta and market value for debt, preferred stock, and common stock… find the asset beta along with the discount rate.
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