Questions from Corporate Finance

Q: Assume that the returns on individual securities are generated by the following

Assume that the returns on individual securities are generated by the following two-factor model: R it = E ( R it ) + β ij F 1 t + β i 2 F 2 t Here: Rit is the return on Securi...

Q: Is it possible for the risk premium to be negative before an

Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain.

Q: The following figures present the results of four cumulative abnormal returns (

The following figures present the results of four cumulative abnormal returns (CAR) studies. Indicate whether the results of each study support, reject, or are inconclusive about the semi-strong form...

Q: Suppose a stock had an initial price of $75 per share

Suppose a stock had an initial price of $75 per share, paid a dividend of $1.20 per share during the year, and had an ending share price of $86. Assuming the ending share price is $67. Compute the pe...

Q: The market portfolio has an expected return of 12 percent and a

The market portfolio has an expected return of 12 percent and a standard deviation of 22 percent. The risk-free rate is 5 percent. a. What is the expected return on a well-diversified portfolio with a...

Q: A portfolio that combines the risk-free asset and the market

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the expected ret...

Q: Suppose the risk-free rate is 4.2 percent and

Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market portfolio has a variance of .0382. Portfolio Z has a correlation coefficient with...

Q: Consider the following information about Stocks I and II:

Consider the following information about Stocks I and II: The market risk premium is 7.5 percent, and the risk-free rate is 4 percent. Which stock has the most systematic risk? Which one has the mos...

Q: Suppose you observe the following situation: /

Suppose you observe the following situation: Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?

Q: There are three securities in the market. The following chart shows

There are three securities in the market. The following chart shows their possible payoffs: a. What are the expected return and standard deviation of each security? b. What are the covariances and c...