Integrative—Risk, return, and CAPM Wolff Enterprises must consider several investment projects, A through E, using the capital asset pricing model (CAPM) and its graphical representation, the security market line (SML). Relevant information is presented in the following table.a. ...
03 Jun 2021Shifts in the security market line Assume that the risk-free rate, RF, is currently 8%, the market return, rm, is 12%, and asset A has a beta, bA, of 1.10. a. Draw the security market line (SML) on a set of “nondiversifiable risk (x axis)– required return (y axis)” axes. b. Use...
03 Jun 2021Security market line (SML) Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 13%. a. Draw the security market line (SML) on a set of “nondiversifiable risk (x axis)–required return (y axis)” axes. b. Calculate and label the market ...
03 Jun 2021Portfolio return and beta Jamie Peters invested $100,000 to set up the following portfolio one year ago:a. Calculate the portfolio beta on the basis of the original cost figures. b. Calculate the percentage return of each asset in the portfolio for the year. c. Calculate the pe...
03 Jun 2021Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 0.90 when the risk-free rate and market return are 8% and 12%, respectively. b. Find the risk-free...
03 Jun 2021Beta coefficients and the capital asset pricing model Katherine Wilson is wondering how much risk she must undertake to generate an acceptable return on her portfolio. The risk-free return currently is 5%. The return on the overall stock market is 16%. Use the CAPM to calculate h...
03 Jun 2021Capital asset pricing model (CAPM) For each of the cases shown in the following table, use the capital asset pricing model to find the required return.
03 Jun 2021Portfolio betas Rose Berry is attempting to evaluate two possible portfolios, which consist of the same five assets held in different proportions. She is particularly interested in using beta to compare the risks of the portfolios, so she has gathered the data shown in the follow...
03 Jun 2021Betas and risk rankings You are considering three stocks—A, B, and C—for possible inclusion in your investment portfolio. Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of 0.30. a. Rank these stocks from the most risky to the least risky. b. If t...
02 Jun 2021Betas Answer the questions below for assets A to D shown in the table. Asset Beta A 0.50 B 1.60 C 0.20 D 0.90 a. What impact would a 10% increase in the market re...
02 Jun 2021Interpreting beta A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.20. a. If the market return increased by 15%, what impact would this change be expected to have on the asset’s return? b. If the market return decreased by 8%, ...
02 Jun 2021Graphical derivation and interpreting beta You are analyzing the performance of two stocks. The first, shown in Panel A, is Cyclical Industries Incorporated. CyclicalIndustries makes machine tools and other heavy equipment, the demand for which rises and falls closely with the ov...
02 Jun 2021Graphical derivation of beta A firm wishes to estimate graphically the betas for two assets, A and B. It has gathered the return data shown in the following table for the market portfolio and for both assets over the last 10 years, 2003–2012.a. On a set of “market return (x axis)...
02 Jun 2021International investment returns Joe Martinez, a U.S. citizen living in Brownsville, Texas, invested in the common stock of Telmex, a Mexican corporation. He purchased 1,000 shares at 20.50 pesos per share. Twelve months later, he sold them at 24.75 pesos per share. He received n...
02 Jun 2021Correlation, risk, and return Matt Peters wishes to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfect positive, uncorrelated, and perfect negative. The expected returns and standard de...
02 Jun 2021Portfolio return and standard deviation Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 40% of the dollar value of the portfolio, and stock M will account for the other 60%. The expected returns over the next 6 yea...
02 Jun 2021Normal probability distribution Assuming that the rates of return associated with a given asset investment are normally distributed; that the expected return, is 18.9%; and that the coefficient of variation, CV, is 0.75; answer the following questions: a. Find the standard devia...
02 Jun 2021Integrative—Expected return, standard deviation, and coefficient of variation Three assets—F, G, and H—are currently being considered by Perth Industries. The probability distributions of expected returns for these assets are shown in the following table.a. Calculate the expected...
02 Jun 2021Assessing return and risk Swift Manufacturing must choose between two asset purchases. The annual rate of return and the related probabilities given in the following table summarize the firm’s analysis to this point. a. For each project, compute: (1) The range of possible rates ...
02 Jun 2021Rate of return, standard deviation, coefficient of variation Mike is searching for a stock to include in his current stock portfolio. He is interested in Hi-Tech Inc.; he has been impressed with the company’s computer products and believes Hi-Tech is an innovative market player. ...
02 Jun 2021Standard deviation versus coefficient of variation as measures of risk Greengage, Inc., a successful nursery, is considering several expansion projects. All of the alternatives promise to produce an acceptable return. Data on four possible projects follow.a. Which project is leas...
02 Jun 2021Coefficient of variation Metal Manufacturing has isolated four alternatives for meeting its need for increased production capacity. The following table summarizes data gathered relative to each of these alternatives.a. Calculate the coefficient of variation for each alternative. ...
02 Jun 2021Bar charts and risk Swan’s Sportswear is considering bringing out a line of designer jeans. Currently, it is negotiating with two different well-known designers.Because of the highly competitive nature of the industry, the two lines of jeans have been given code names. After mark...
02 Jun 2021Risk and probability Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R and S. Both should provide benefits over a 10-year period, and each requires an initial investment of $4,000. Management has constructed the accompanying table of estimates of rat...
02 Jun 2021Risk analysis Solar Designs is considering an investment in an expanded product line. Two possible types of expansion are being considered. After investigating the possible outcomes, the company made the estimates shown in the following table.a. Determine the range of the rates o...
02 Jun 2021Risk preferences Sharon Smith, the financial manager for Barnett Corporation,wishes to evaluate three prospective investments: X, Y, and Z. Sharon will evaluateeach of these investments to decide whether they are superior to investments that her company already has in place, whic...
02 Jun 2021Return calculations For each of the investments shown in the following table, calculate the rate of return earned over the unspecified time period.
02 Jun 2021Rate of return Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Douglas’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year earli...
02 Jun 2021a. Calculate the required rate of return for an asset that has a beta of 1.8, given arisk-free rate of 5% and a market return of 10%. b. If investors have become more risk-averse due to recent geopolitical events, and the market return rises to 13%, what is the required rate of ...
02 Jun 2021You wish to calculate the risk level of your portfolio based on its beta. The five stocks in the portfolio with their respective weights and betas are shown in the accompanying table. Calculate the beta of your portfolio.Stock Portfolio weight Beta A...
02 Jun 2021Your portfolio has three asset classes. U.S. government T-bills account for 45% of the portfolio, large-company stocks constitute another 40%, and small-company stocks make up the remaining 15%. If the expected returns are 3.8% for the T-bills, 12.3% for the large-company stocks,...
02 Jun 2021The expected annual returns are 15% for investment 1 and 12% for investment 2.The standard deviation of the first investment’s return is 10%; the second investment’s return has a standard deviation of 5%. Which investment is less risky based solely on standard deviation? Which in...
02 Jun 2021Four analysts cover the stock of Fluorine Chemical. One forecasts a 5% return for the coming year. A second expects the return to be negative 5%. A third predicts a 10% return. A fourth expects a 3% return in the coming year. You are relatively confident that the return will be p...
02 Jun 2021An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market value of $12 million even thoug...
02 Jun 2021Beta and CAPM Currently under consideration is an investment with a beta, b, of 1.50. At this time, the risk-free rate of return, RF, is 7%, and the return on the market portfolio of assets, rm, is 10%. You believe that this investment will earn an annual rate of return of 11%. ...
02 Jun 2021Portfolio analysis You have been asked for your advice in selecting a portfolio of assets and have been given the following data: Expected returnYear Asset A Asset B Asset C 2013 12% ...
02 Jun 2021Cell Phones and Crashes: Analyzing Newspaper Report In an article from the Associated Press, it was reported that researchers “randomly selected 100 New York motorists who had been in an accident and 100 who had not been in an accident. Of those in accidents, 13.7 percent owned a...
31 May 2021Fear of Heights Among readers of a USA Today website, 285 chose to respond to this posted question: “Are you afraid of heights in tall buildings?” Among those who chose to respond, 46% answered “yes” and 54% answered “no.” Use a 0.05 significance level to test the claim that the ...
31 May 2021Mean and Median In a recent year, the players on the New York Yankees baseball team had salaries with a mean of $7,052,129 and a median of $2,500,000. Explain how the mean and median can be so far apart.
31 May 2021Sample Size Advances in technology are dramatically affecting different aspects of our lives. For example, the number of daily print newspapers is decreasing because of easy access to Internet and television news. To help address such issues, we want to estimate the percentage o...
31 May 2021Randomness Refer to the following ages at inauguration of the elected presidents of the United States (from Data Set 15 “Presidents” in Appendix B). Test for randomness above and below the mean. Do the results suggest an upward trend or a downward trend?
31 May 2021Drug Tests Use the data from the preceding exercise and test the claim that the rate of positive drug test results among workers in the United States is greater than 3.0%. Use a 0.05 significance level.
31 May 2021Drug Tests There is a 3.9% rate of positive drug test results among workers in the United States (based on data from Quest Diagnostics). Assuming that this statistic is based on a sample of size 2000, construct a 95% confidence interval estimate of the percentage of positive drug...
31 May 2021use the data listed below. The values are departure delay times (minutes) for American Airlines flights from New York to Los Angeles. Negative values correspond to flights that departed early. Departure Delay Times Use a nonparametric test to test the claim that the three samples...
31 May 2021use the data listed below. The values are departure delay times (minutes) for American Airlines flights from New York to Los Angeles. Negative values correspond to flights that departed early. Test for Normality Use the departure delay times for Flight 19 and test for normality u...
31 May 2021use the data listed below. The values are departure delay times (minutes) for American Airlines flights from New York to Los Angeles. Negative values correspond to flights that departed early. Flight Departure Delays Compare the three samples using means, medians, and standard de...
31 May 2021Student and U.S. News & World Report Rankings of Colleges Each year, U.S. News & World Report publishes rankings of colleges based on statistics such as admission rates, graduation rates, class size, faculty–student ratio, faculty salaries, and peer ratings of administrators. Eco...
31 May 2021Airline Fares Refer to the same data from given data. Use the Wilcoxon signedranks test to test the claim that differences between fares for flights scheduled 1 day in advance and those scheduled 30 days in advance have a median equal to 0. What do the results suggest?
31 May 2021Airline Fares Listed below are the costs (in dollars) of eight different flights from New York (JFK) to San Francisco for Virgin America, US Airways, United Airlines, JetBlue, Delta, American Airlines, Alaska Airlines, and Sun Country Airlines. (Each pair of costs is for the same...
31 May 2021Old Faithful Listed below are time intervals (min) between eruptions of the Old Faithful geyser. The “recent” times are within the past few years, and the “past” times are from 1995. Test the claim that the two samples are from populations with the same median. Does the conclusi...
31 May 2021