Question
We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It prospers in recessions when other firms are
We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It prospers in recessions when other firms are struggling. Consequently, its beta is negative, -.2. (L02)
a. If the interest rate on Treasury bills is 5% and the expected return on the market portfolio is
15%, what is the expected return on the shares of the law firm according to the CAPM?
b. Suppose you invested 90% of your wealth in the market portfolio and the remainder of your
Wealth in the shares in the law firm. What would be the beta of your portfolio?
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
a As per CAPM a stocks required rate of return is the return that an investor expects to get in retu...
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Step: 2
Step: 3
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Fundamentals of Corporate Finance
Authors: Richard Brealey, Stewart Myers, Alan Marcus
9th edition
1259722619, 978-1260049190, 1260049191, 978-1259722615
