Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 2, Problem 12MC
Summary Introduction

T Case summary:

Person X is a graduate, who is working as a financial planner at company C. The president and congress involved in the dispute of acrimonious over the financing of debt and budget. The dispute which is not settled at the end of the year and effected the rate of interest.

The responsibility of person X is to compute the risk of bond portfolio of client. Person X should explain the probable scenarios for the dispute resolution and compute rate of return for 10 year zero coupon treasury bond for each cases.

o compute: The correlation coefficient with market and stock B.

Summary Introduction

To compute: The beta of stock B.

Summary Introduction

To compute: The required return of stock B and determine stock B is more or less contribute risk to a well differentiated portfolio.

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When working with the CAPM, which of the following factors can be determined with the most precision?   a. The beta coefficient of "the market," which is the same as the beta of an average stock.     b. The beta coefficient, bi, of a relatively safe stock.     c. The market risk premium (RPM).     d. The most appropriate risk-free rate, rRF.     e. The expected rate of return on the market, rM.
When working with the CAPM, which of the following factors can be determined with the most precision?   a. The most appropriate risk-free rate, rRF.     b. The market risk premium (RPM).     c. The beta coefficient, bi, of a relatively safe stock.     d. The expected rate of return on the market, rM.     e. The beta coefficient of "the market," which is the same as the beta of an average stock.
d. Interpret your results in (c) above, assuming that the historical average return of 8.5% from the stock is a good benchmark. e. Critically evaluate the strengths and weaknesses of applying the implied rate of return from the RIVM as a proxy of the expected return.
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