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2. information In Simpleland, there are only two risky assets in the market, A and B. The and CAPM estimates of A and B are shown in the following table:

2. information In Simpleland, there are only two risky assets in the market, A and B. The and CAPM estimates of A and B are shown in the following table:

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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In Simpleland, there are only two risky assets in the market, A and B. The information and CAPM estimates of A and B are shown in the following table: A 100 Million 0.09 Market Capitalisation ($) |Variance (o²) Covariance between A and B Expected Return on Market Risk free rate 400 Million 0.01 0.2 20% 10% The manager believes that in the near future, B will outperform A by 5% with uncertainty measured in variance 0.0005. He has also assigned the error of estimating the above CAPM model in terms of variance to be 0.01, i.e. T = 0.01. a) What is the expected return of A and B under CAPM? 2.
Transcribed Image Text:In Simpleland, there are only two risky assets in the market, A and B. The information and CAPM estimates of A and B are shown in the following table: A 100 Million 0.09 Market Capitalisation ($) |Variance (o²) Covariance between A and B Expected Return on Market Risk free rate 400 Million 0.01 0.2 20% 10% The manager believes that in the near future, B will outperform A by 5% with uncertainty measured in variance 0.0005. He has also assigned the error of estimating the above CAPM model in terms of variance to be 0.01, i.e. T = 0.01. a) What is the expected return of A and B under CAPM? 2.
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