Question

Use the following information to answer the questions. 1. Security Beta Standard deviation Expected return Market 1.0 10% 8.0% Risk-free 0.0 4.0% 2% Firm A 1.5 30% 14.0% Firm B 20% 2.0 Firm C 1) Figure out the expected return for Firm A. (25points) 2) Figure out the beta for Firm B (25points) 3) Firm C has a beta of 2.0 and a standard deviation of 25%. Given that Firm A has a beta of 1.5 and a standard deviation of 30%, i) which firm has a higher total risk? Firm A or Firm C? ii) which firm has a higher expected return? Firm A or Firm C? why? (40points) 4) There are three kinds of risk: total risk, systematic risk, and unsystematic risk. Which risk can investors remove by forming a diversified portfolio? (20points) 5) Among three kinds of risk;, which risk determines the expected return on a stock? (20points)

Do only part 3 and 4 please.
need urgent.

Answer 1

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Home ert Page Layout Formulas Data Review V Add-Ins 義Cut Σ AutoSum , ta copy." Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Sort &Find & Format Painter 袖 2 Clear , Formatting ▼ as Table-styles ▼ Filter Select ▼ ▼ ▼ Clipboard Font Cells dting Alignment CK CM CP CF CG CJ CN CO CQ CR CS 1 FIRM A EXPECTED RETURN-Rfbeta (Rm-Rf) EXPECTED RETURN = 4% + 1.5*(8%-4%) 4 EXPECTED RETURN- 10.00% 6 2 FIRM B EXPECTED RETURN-Rfbeta (Rm-Rf) 14%-4% + beta"( 896-496) 10%-beta(496) 2.5 10 beta- 12 3 TOTAL RISK IS MEASURED BY STANDARD DEVIATION 13 IT IS HIGHER FOR FIRM A (3096) 14 15 FIRM CEXPECTED RETURN-Rf+beta (Rm-Rf) EXPECTED RETURN = 4% + 2*(896-496) 16 17 EXPECTED RETURN- 12.00% 18 19 HIGHER EXPECTED RETURN IS FOR FIRM C 20 BECAUSE FIRM C HAS HIGHER BETA ETEMADI beta Sheet2 ·/> port future INDEX IN TL CAP BUD LEASING PV FV. ANNUITY DIR ght- dean YIELD bond u WACC RESI ex d Drv POLICY NAME . Sheet1 23-05-2019

Home ert Page Layout Formulas Data Review V Add-Ins 義Cut Σ AutoSum , 11 Arap Text aCopy Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles ClearFilter Select Clipboard Font Cells dting Alignment CH39 CK CM CP CF CG CH Cl CJ CN CO CQ CR CS 21 4 UNSYSTEMATIC RISK CAN BE REMOVED BY 23 FORMING A DIVERSIFIED PORTFOLIO 24 25 SYSTEMATIC RISK IS A MARKET RISK WHICH CAN NOT BE REMOVED 26 27 28 TOTAL RISK IS MADE UP OF SUSTEMATIC AND UNSYSTEMATIC RISK 29 30 5 SYSTEMATIC RISK BETA 31 EXPECTED RETURN Rfbeta (Rm-Rf) SO SYSTEMATIC RISK DETERMINES EXPECTED RETURN 32 34 35 36 37 38 39 Sheet2 -/> pOrt future INDEX IN TL CAP BUD LEASİNG Pv, FV, ANNUITY DIR n ht dean YIELD bond u WACC RESI ex d Drv POLICY NAME . Sheet1 ETEMADI beta 23-05-2019