INV2601-Exam Oct_Nov 2023 (page 8 of 20)

Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items.  Question 2Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph

Question 2 You must choose between two investments, X and Y . The profitability index (PI), net present value (NPV) and internal rate of return (IRR) of the two investments are as follows: Criteria Investment X Investment Y NPV R44 000 −R22 000 PI 1,945 0,071 IRR 16,00% 8,04% Which investment(s) should you choose, taking all the above criteria into consideration, if the cost of capital is equal to 12% per year? [1] X [2] Y [3] Both X and Y [4] Neither X nor Y [5] Too little information to make a decision 17 DSC1630

9. A risk averse, wealth maximising, investor is faced with a choice between four investments (P, Q, R and S) that have profiles as follows: 
  Mean return (%)        Variance (%)       P 19                      18 
    Q 16                     17     
R 22                     16 
    S 20                     16 
 Between which pair of these investments would the investor find it impossible to distinguish on the basis of the above information?   A. P and Q 
   B. R and S 
   C. P and S 
   D. Q and R

Which of the following investments does a rational investor prefer? a. Investment A: E(R) = 12%, σ = 5%   b. Investment B: E(R) = 10%, σ = 5.5%   c. Investment C: E(R) = 11%, σ = 6%   d. Investment D: E(R) = 11.5%, σ = 6%

Problem 3: Investments X and Y both offer the same expected rate of return. The standard deviation of X is lower than that of Y's standard deviation. If an investor needs to choose between the two, which investment should he invest in? Problem 4: Investments C and D both offer the same standard deviation. The expected return of C is higher than that of D's expected return. If an investor needs to choose between the two, which investment should she invest in? Problem 5: Suppose the beta of Company A is 0.8, the risk-free rate is 2.7 percent, and the market risk premium is 5.5 percent. Calculate the expected return for Company A

Please correct answer and don't use hand rating

What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75

At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only II and IV only III and IV only ооо O

b. As an equity portfolio manager, you may use certain risk-adjusted performance measures. Describe and discuss the following measures of performance evaluation! Treynor Index, William Sharpe, Michael Jensen Using the following table evaluate which is better than other using three different measure of performance evaluation. Asset X E(R)% 12 beta Stdv 1.25 16 Y 11 1.0 12 Risk-free 3 0 0 Market index 12 1 12

What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25

Which asset in the following table has the most market risk (also known as systematic or non- diversifiable risk)? Asset A B Asset B Asset A Return Both Assets A and C Asset C (10% 12% 14% Beta 0.74 1.00 1.25 Standard Deviation 20% 40% 30%

i need the answer quickly

Give typing answer with explanation and conclusion  The additional compensation that investors require to take on higher risk investments is the a. standard deviation. b. coefficient variation. c. Sharpe ratio. d. risk premium. e. risk aversion.

Please could part iii) be answered

QUESTION 2 For which type of risk do you get rewarded with a higher expected return? a. Firm-specific risk Ob. Total risk C. Diversifiable risk d. Unknown е. Systematic risk

Please answer all questions

Which asset in the following table has the most market risk (also known as systematic or non- diversifiable risk)? Asset Return Beta Standard Deviation Asset A 11% 0.95 35% Asset B 13% 1.00 35% Asset C 9% 1.20 30% 1.) Asset C 2.) All three Assets 3.) Asset B 4.) Asset A and Asset B 5.) Asset A