2. Suppose the market portfolio is equally likely to increase by 30% or decrease by 10%. a. Calculate the beta of firm A that goes up by 43% when the market goes up and goes down by 17% when the market goes down. b. Calculate the beta of firm B that goes up on by 18% when the market goes down and goes down by 10% when the market goes up. c. Calculate the beta of a portfolio that invests 30% in firm A and 70% in firm B.

2. Suppose the market portfolio is equally likely to increase by 30% or decrease by 10%. a. Calculate the beta of firm A that goes up by 43% when the market goes up and goes down by 17% when the market goes down. b. Calculate the beta of firm B that goes up on by 18% when the market goes down and goes down by 10% when the market goes up. c. Calculate the beta of a portfolio that invests 30% in firm A and 70% in firm B.

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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Similar questions

Consider two types of assets: market portfolio (M) and stock A. The expected return is 8% and standard deviation of the market portfolio is 15%. The risk-free rate is 2%. The standard deviation of market portfolio returns is 15%. The standard deviation of stock A is 30%, and the beta coefficient is 1. Draw the capital market line and show the position of stock A.
Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 20 %. Portfolio B has a beta of 0.7 and an expected return of 16%. The risk - free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio
Use the expected return-beta equation from the CAPM. What is the expected return for a stock if the risk-free rate is 4%, beta 0.9 and the expected return for the market portfolio is 6%? What is the risk-free rate if beta is 1.1, the expected return 6.3% and the expected return for the market portfolio is 6%? What is beta if the risk-free rate is 4%, the expected return 11% and the expected return for the market is 6%? What is the expected return for the market if the risk-free rate is 4%, beta 0.9 and the expected return 11%?
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 49%. Portfolios A and B are both well diversified. Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.6 2.4 39 B 2.3 -0.7 9 Required: What is the expected return–beta relationship in this economy?
Suppose the risk free return is 6%. The beta of a managed portfolio is 1.5, the alpha is 3%, and the average return is 18%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as ___ % ?
The return on market portfolio is 12% and the risk-free is 6%. The beta coefficient is 1.3.Using the capital asset pricing model, what is the cost of capital (or required rate of return)? a. 12.8% b. 13.8% c. 14% d. 14.8% If the beta coefficient increases to 1.6, the required rate of return will increase (decrease) by a. 1.2% b. 1.4% c. 1.6% d. 1.8%
1. Suppose you have n risky assets you can combine in a portfolio. Each risky asset has an expected return of 8% and a standard deviation of 30%. The risky assets are uncorrelated with each other. (a) Consider an equally weighted portfolio of 2 of these securities. What is its expected return? What will its standard deviation be? (b) Consider an equally weighted portfolio of 30 of these securities. What is its expected return? What will its standard deviation be? (c) Suppose we let the number of these securities increase without bound. That is, n→ ∞o. What happens to the standard deviation of an equally weighted portfolio of these securities as the number of assets in the portfolio becomes extremely large? What will the riskless rate be in this case, and why? -int IDE
Suppose the risk-free return is 2% and the return on the market is 10%. The beta of a managed portfolio is 1.5, and the average realized return is 13%. According to the CAPM, Jensen’s alpha of the managed portfolio is: A) –1% B) 0% C) 1% D) 2% E) none of the above
The risky portfolio expected return and standard deviation is 14% and 20%, respectively. The risk free rate is 5%. The risk aversion coefficient A is 2.5 and 4 for Mary and Kim, respectively. Answer the following questions: A. Who is more risk averse? B. What is the capital allocation y to the risky portfolio for each investor? C. Suppose investors have the following utility function: U = E(R) - ¹2 Ao² Calculate the Utility level for each investor's optimal complete portfolio.
Asset B has a beta of 1.2 and an expected return of 16%. The risk-free rate is 4%. If you wish to hold a portfolio with a beta equal to 1.0, what is the expected return of the portfolio? 13.0% 10.0 % 15.0 % 12.0% 14.0%

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