Q: True or false? a. Investors prefer diversified companies
True or false? a. Investors prefer diversified companies because they are less risky. b. If stocks were perfectly positively correlated, diversification would not reduce risk. c. Diversification o...
See AnswerQ: A factory costs $400,000. It will produce
A factory costs $400,000. It will produce an inflow after operating costs of $100,000 in year 1, $200,000 in year 2, and $300,000 in year 3. The opportunity cost of capital is 12%. Show your calculat...
See AnswerQ: In which of the following situations would you get the largest reduction
In which of the following situations would you get the largest reduction in risk by spreading your investment across two stocks? a. The two shares are perfectly correlated. b. There is no correlatio...
See AnswerQ: To calculate the variance of a three-stock portfolio, you
To calculate the variance of a three-stock portfolio, you need to add nine boxes: Use the same symbols that we used in this chapter; for example, x1 = proportion invested in stock 1 and σ12 = covar...
See AnswerQ: Suppose the standard deviation of the market return is 20%.
Suppose the standard deviation of the market return is 20%. a. What is the standard deviation of returns on a well-diversified portfolio with a beta of 1.3? b. What is the standard deviation of retu...
See AnswerQ: A portfolio contains equal investments in 10 stocks. Five have
A portfolio contains equal investments in 10 stocks. Five have a beta of 1.2; the remainder have a beta of 1.4. What is the portfolio beta? a. 1.3. b. Greater than 1.3 because the portfolio is not co...
See AnswerQ: What is the beta of each of the stocks shown in table
What is the beta of each of the stocks shown in table
See AnswerQ: Look again at projects D and E in Section 5-3
Look again at projects D and E in Section 5-3. Assume that the projects are mutually exclusive and that the opportunity cost of capital is 10%. a. Calculate the profitability index for each project. b...
See AnswerQ: Consider the following capital rationing problem: / Set up
Consider the following capital rationing problem: Set up this problem as a linear program and solve it. You can allow partial investments, that is, 0 ≤ x ≤ 1. C...
See AnswerQ: Here are inflation rates and U.S. stock market and
Here are inflation rates and U.S. stock market and Treasury bill returns between 1929 and 1933: a. What was the real return on the stock market in each year? b. What was the arithmatic average real...
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