Answer to Question #83945 in Finance for Jay

Question

1) If a firm borrows £20 million for one year at an interest rate of 4%, approximately what is
the present value of the interest tax shield? Assume a 20% marginal corporate tax rate.

2) What is the standard deviation of the portfolio that consists of A and B shares?

Firm Expected Return Standard Deviation Percentage of portfolio Correlation
A 20% 40% 60% 0.2
B 10% 20% 40% 0.2