Questions from General Investment

Q: The standard deviation of the market index portfolio is 20%. Stock

The standard deviation of the market index portfolio is 20%. Stock A has a beta of 1.5 and a residual standard deviation of 30%. a. What would make for a larger increase in the stock’s variance: an i...

Q: Suppose that the returns on the stock fund presented in Spreadsheet 6

Suppose that the returns on the stock fund presented in Spreadsheet 6.1 were −40%, −14%, 17%, and 33% in the four scenarios. a. Would you expect the mean return and variance of the stock fund to be m...

Q: Use the rate-of-return data for the stock and

Use the rate-of-return data for the stock and bond funds presented in Spreadsheet 6.1, but now assume that the probability of each scenario is as follows: severe recession: .10; mild recession: .20; n...

Q: A pension fund manager is considering three mutual funds. The first

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a Tbill money market fund that yield...

Q: A pension fund manager is considering three mutual funds. The first

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a Tbill money market fund that yield...

Q: Suppose investors believe that the standard deviation of the market-index

Suppose investors believe that the standard deviation of the market-index portfolio has increased by 50%. What does the CAPM imply about the effect of this change on the required rate of return on Goo...

Q: The market price of a security is $40. Its expected

The market price of a security is $40. Its expected rate of return is 13%. The risk-free rate is 7%, and the market risk premium is 8%. What will the market price of the security be if its beta double...

Q: You are a consultant to a large manufacturing corporation considering a project

You are a consultant to a large manufacturing corporation considering a project with the following net after-tax cash flows (in millions of dollars): The project’s beta is 1.7. Assum...

Q: Consider the following table, which gives a security analyst’s expected return

Consider the following table, which gives a security analyst’s expected return on two stocks and the market index in two scenarios: a. What are the betas of the two stocks? b. What...

Q: If the simple CAPM is valid, which of the situations in

If the simple CAPM is valid, which of the situations in Problem below is possible? Explain. Consider each situation independently.