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finance help

finance help
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Answer #1

It is clearly stated in the problem that the firm has market risk equally between that of UPS and FedEX

This clearly implies that the firm has invested equal amounts in the 2 stocks

Equity beta will be computed by multiplying the weight of the stock by their respective beta and adding them up in the following manner :-

A BI DE 3 UPS FedEx Weight of the Stock in the Portfolio BetaE) Weighted Beta 0.5 0.8 0.4 0.5 1.1 0.55 0.95 5

A B DE Weight of the Stock in the Portfolio Beta(E) Weighted Beta UPS 0.5 0.8 =C3*D3 FedEX 0.5 1.1 =C4*D4 =SUM(E3:E4) 6

Hence, Firm's equity beta = 0.95

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