Questions from Corporate Finance

Q: How do you determine if a portfolio or security is undervalued,

How do you determine if a portfolio or security is undervalued, correctly valued, or overvalued?

Q: What is the beta of the following? a. Risk

What is the beta of the following? a. Risk‐free asset b. Market portfolio

Q: If a security’ s total risk (variance) increases, does

If a security’ s total risk (variance) increases, does that mean the beta must have increased? Explain.

Q: Which security, A, B, or C, will provide

Which security, A, B, or C, will provide the greatest return per unit of risk when combined with the risk free asset with a 5 percent rate of return? ERA = 20 percent, σA = 5 percent ERB = 25 percent,...

Q: The current price of a stock is $20. It is

The current price of a stock is $20. It is expected to rise to $22 in one year and pay an annual dividend of $1 during the year. The RF is 4 percent, the ER M is 10 percent, and the stock’s beta is 1....

Q: The idea behind CAPM is that investors should not be compensated for

The idea behind CAPM is that investors should not be compensated for diversifiable risk. Why not?

Q: The risk‐free rate is 5 percent, the risk premium

The risk‐free rate is 5 percent, the risk premium is 6 percent, and stock A has an expected return of 15.5 percent. What is the beta of stock A?

Q: State Roll’ s critique concerning the CAPM.

State Roll’ s critique concerning the CAPM.

Q: On Monday you invested $182 in Dettall Ltd. Dettall has

On Monday you invested $182 in Dettall Ltd. Dettall has earned daily returns of −8 percent, 18 percent, −30 percent, 6 percent, 7 percent, and −5 percent. What is the value of your investment at the e...

Q: You are following five different stocks and need to issue a recommendation

You are following five different stocks and need to issue a recommendation (buy, hold, or sell) to your customers. The market return is 10 percent, with a standard deviation of 15 percent. The risk&ac...