1. What must be the beta of a portfolio with E(rp) = 18%, if rƒ= 6% and E(rm) = 14%?

Q: Assume that the risk free rate is currently 3% and that the market retunr is currently 11%.…

A: The market risk premium and required return for securities can be calculated with the help of CAPM…

Q: #2 #3 #4 00 #1

A: We need to determine the Utility of each of the Investment by inputting the values. Then we can…

Q: There are two assets 1 and 2, with returns X and Y correspondingly. Return X is a random variable…

A: Portfolio risk is the possibility that the mix of assets or units in your investments may fail to…

Q: a. What is the expected return of each asset? b. What is the variance and the standard deviation c.…

A: Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question…

Q: If you perform a NPV analysis on a perspective investment using a "d" = 15% and:       a. the…

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: 1) Consider the following assets E(r) Asset A 0.2 B C 0.1 0.15 A B C 0 0.12 0.07 0.1 If the…

A:

Q: Return SD 0.05 0.25 0.17 0.18 0.008 A B COV A Rf this is a minimum variance question what is the…

A: Use the formula for weights in a two-asset minimum variance portfolio: [ w_A = \frac{\sigma^2_B -…

Q: What must be the beta of a portfolio with E(rp) 12%, if ry = 6% and E(r) 113? (Do not round…

A: As per CAPM, Expected Return = Risk free Rate + Beta * (Market Return - Risk free Rate) Risk free…

Q: Consider a portfolio where equal investment is made in each of the n stocks. Thus, the proportion…

A: Portfolio variance is a measure used in finance to quantify the overall risk or volatility of a…

Q: Give the following true population SIM (not estimated SIM): Ri-Rf=0.1%+1.2(Rb-Rf)+ϵi When estimating…

A: The Single Index Model is a statistical technique used in finance to analyze and predict the…

Q: Assume that Rf = 6 percent and the market risk premium (Km - Rf) is 7.0 percent. Compute Kj for the…

A: In this question we require to compute the Kj i.e. expected return of a stock where, Rf = 6%  Market…

Q: Consider portfolio x with a beta of 1.3 and standard deviation of 25%. If the standard deviation of…

A: The portfolio will be considered as efficient or optimal if the standard deviation for the portfolio…

Q: Consider the following regression Pt * - Pt = .07(1.4) + .4*Pt (3.6) + et where Pt * is Shiller’s ex…

A: The efficient markets theory is a theoretical framework that explains the functioning of financial…

Q: a) First, ignore the fact that r₁f depends on whether you are long or short the risk-free asset.…

A: The tangency portfolio: The efficiency frontier is a set of portfolios that either yield the highest…

Q: What is the correlation coefficient between returns on any efficient portfolio and returns on the…

A: Efficient portfolio is a type of portfolio which has eliminated all the non-systematic risk in the…

Q: 4. Asset Z has an expected return of 9.5 percent and a beta of 0.85. If the risk-free rate is 2.2…

A: We can determine the expected return of the portfolio using the formula below: Expected Return =…

Q: On the basis of the utility formula below, which investment would you select if you were risk averse…

A:

Q: 4. Suppose portfolio P's expected return in 12%, its volatility (standard deviation) is 20%, and the…

A: Solution:- Sharpe Ratio measures the excess return over risk free return, per unit of risk taken ie.…

Q: Use the required return-beta equation from the CAPM What is the required return if the risk-free…

A: The Capital Asset Pricing Model (CAPM) measures the relationship between the return and the risk of…

Q: Assume that using the Security Market Line the required rate of return (RA) on stock A is found to…

A: As per the above consideration The ratio of expected return on A and expected return on B is

Q: An optimal risk portfolio’s expected return is 14%, standard deviation is 22%. If risk-free rate is…

A: The tradeoff between the return and risk of the portfolio is measured by the slope of CAL(Capital…

Q: 5. Portfolio Beta Portfolio beta can be computed in the same way as portfolio return was computed.…

A: Beta is used in determining the risk premium to be expected from investment made in a asset because…

Q: Suppose that we have this information about the current market return and the risk-free return: •…

A: Market return = 12%Risk-free rate = 8%Beta = 1.4Cost of equity can be calculated by using the…

Q: If the risk premium to beta ratio of GOOG is 2 while the ratio of APPL is 3, what will happen?

A: Treynors ratio: Treynors ratio is used to measure the performance of the company. It is the ratio of…

Q: We consider a one-step binomial tree in which the parameters are u = 1.2, d = 0.8, r = 0.12, T=…

A: The binomial tree depicts the intrinsic value of an option at various periods.

Q: The beta of the market portfolio is: 1.0 0.5 -1.0

A: In the given question we need to tell the beta of market porfolio.

Q: Suppose two asset returns are described by a 1-factor model r1= 2% + 0.6f + e₂ r2 = 2% +0.6f + ez…

A: Single-factor models, also referred to as one-factor models or single-index models, are financial…

Q: Calculate the expected return for an investment with the following probability distribution. Return…

A: The expected return is the return of the portfolio which is the sum of each potential return that is…

Q: Find the tangency portfolio mathematically (or mean-variance efficient portfolio). Follow the next…

A: This question has four subparts. The first two subparts have been answered here.

Q: Mean-variance expected utility is given by Eu = e-, where e is expected return, v is the variance of…

A: Mean-variance expected utility is a concept in finance that combines an investor's preferences for…

Q: 4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of…

A: The Capital Asset Pricing Model (CAPM) is a financial model which depicts the relationship between…

Q: You are given the following Information concerning three portfollos, the market portfolio, and the…

A: The Sharpe ratio, Treynor ratio, and Jensen's Alpha serve as benchmarks for evaluating investment…

Q: What must be the beta of a portfolio with E(rp) = 14.5%, if rf = 4% and E(TM) = 10%? (0 Round your…

A: Solution:-Capital Asset Pricing Model (CAPM) is a model which gives a formula to calculate the…

Q: Use the following information: ElrXOM E[TMS)=29.7%, standard deviationMS = 35.2% = 15.6%, standard…

A: Weight of XOM is 0.43 and weight of MS is 1-0.43= 0.57

Q: Think about whether a risk-free asset should earn a risk-premium beyond the risk-free rate.…

A: The risk free asset will reflect an asset which has eliminated all the risk and which does not have…

Q: Remember the following the 1-factor model or CAPM is defined as re-rf = beta * [rm -rf] what is the…

A: Risk free rate (rf) = 0.05 Return on market (rm) = 1.88 Beta = 1.47 Return on equity (re) = ?

Q: A reasonably good model for stock prices / asset values dS = µSdt+oSdz or ds S where is the expected…

A: GBM ( Geometric Brownian Motion) : It is a continuous-time stochastic process in which the logarithm…

Q: The beta of the risk-free asset is: 0.5 0.5 1.0 -1.0 2.0

A: In this question we need to tell the value of beta of risk free asset.

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.