Questions from Corporate Finance

Q: When the CAPM correctly prices risk, the market portfolio is an

When the CAPM correctly prices risk, the market portfolio is an efficient portfolio. Explain why.

Q: For fiscal year end 2015, Wal-Mart Stores, Inc

For fiscal year end 2015, Wal-Mart Stores, Inc. (WMT, brand name Walmart) had revenues of $485.65 billion, gross profit of $120.57 billion, and net income of $16.36 billion. Costco Wholesale Corporati...

Q: A big pharmaceutical company, DRIg, has just announced a potential

A big pharmaceutical company, DRIg, has just announced a potential cure for cancer. The stock price increased from $5 to $100 in one day. A friend calls to tell you that he owns DRIg. You proudly repl...

Q: Your investment portfolio consists of $15,000 invested in only

Your investment portfolio consists of $15,000 invested in only one stock—Microsoft. Suppose the risk-free rate is 5%, Microsoft stock has an expected return of 12% and a volatility of 40%, and the mar...

Q: Suppose you group all the stocks in the world into two mutually

Suppose you group all the stocks in the world into two mutually exclusive portfolios (each stock is in only one portfolio): growth stocks and value stocks. Suppose the two portfolios have equal size (...

Q: Consider a portfolio consisting of the following three stocks:

Consider a portfolio consisting of the following three stocks: The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and ex...

Q: Using the data in the following table, estimate (a

Using the data in the following table, estimate (a) the average return and volatility for each stock, (b) the covariance between the stocks, and (c) the correlation between these two stocks.

Q: Suppose Autodesk stock has a beta of 2.16, whereas

Suppose Autodesk stock has a beta of 2.16, whereas Costco stock has a beta of 0.69. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, what is the expected re...

Q: What is the risk premium of a zero-beta stock?

What is the risk premium of a zero-beta stock? Does this mean you can lower the volatility of a portfolio without changing the expected return by substituting out any zero-beta stock in a portfolio an...

Q: Use the data in Problem 5, consider a portfolio that maintains

Use the data in Problem 5, consider a portfolio that maintains a 50% weight on stock A and a 50% weight on stock B. a. What is the return each year of this portfolio? b. Based on your results from par...