Security a Has an Expected Return of 12

question 11

Essay

Security A has an expected return of 12.4% with a standard deviation of 15%,and a correlation with the market of 0.85.Security B has an expected return of -0.73% with a standard deviation of 20%,and a correlation with the market of -0.67.The standard deviation of r_M is 12%.
A) To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why? (Hint: No calculations are necessary to answer this question; it is easy.)
B) What are the beta coefficients of A and B? Calculations are necessary.
C) If the risk-free rate is 6%, what is the value of r_M?

• A) To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why? (Hint: No calculations are necessary to answer this question; it is easy.)
• B) What are the beta coefficients of A and B? Calculations are necessary.
• C) If the risk-free rate is 6%, what is the value of r_M?

Understand the mechanics of the Equity Method for accounting for investments.

Understand and apply the Fair Value Enterprise (FVE) Method for valuing non-controlling interests.

Understand adjustments necessary for inventory valuation differences at acquisition.

Calculate and account for goodwill and its impairment.

---

Definitions:

Counterfeit

Goods that are made or sold under another's brand name without the brand owner's authorization.

General Partnership

A business owned by two or more people who have made a decision to comanage and share in the profits and losses.

Liable

Being legally responsible for something, typically involving financial compensation or obligations.

Discrimination

Unjust or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, sex, or disability.