touch O0 "|44% 17:0820. Assume you have the following table. Ifyou know that the Risk free rate (rf) is 6%,what is the reward to volatility (Sharpe Ratio)?ScenarioProbabilityНPRGood0.310%Average0.59%Bad0.2-10%A) (6.44%)B) 7.5%C) 3.5%D) 6.2%E) None of the aboveThis is a required question21. Carson Inc.'s manager believes thateconomic conditions during the next year willbe strong, normal, or weak, and she thinksthat the firm's returns will have the probabilitydistribution shown below. What's the standarddeviation of the estimated returns? *Economic ConditionsProbabilityReturn22.00/

A ratio that provides information regarding the return of a security to the investor in comparison…

20. Assume you have the following table. If you know that the Risk free rate (rf) is 6%, what is the reward to volatility (Sharpe Ratio)? Scenario Probability HPR Good 0.3 10% Average 0.5 9% Bad 0.2 -10% A) (6.44%) O B) 7.5% C) 3.5% D) 6.2% E) None of the above

20. Assume you have the following table. If you know that the Risk free rate (rf) is 6%, what is the reward to volatility (Sharpe Ratio)? Scenario Probability HPR Good 0.3 10% Average 0.5 9% Bad 0.2 -10% A) (6.44%) O B) 7.5% C) 3.5% D) 6.2% E) None of the above

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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Concept explainers

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.

Question

touch O
0 "|44% 17:08
20. Assume you have the following table. If
you know that the Risk free rate (rf) is 6%,
what is the reward to volatility (Sharpe Ratio)?
Scenario
Probability
НPR
Good
0.3
10%
Average
0.5
9%
Bad
0.2
-10%
A) (6.44%)
B) 7.5%
C) 3.5%
D) 6.2%
E) None of the above
This is a required question
21. Carson Inc.'s manager believes that
economic conditions during the next year will
be strong, normal, or weak, and she thinks
that the firm's returns will have the probability
distribution shown below. What's the standard
deviation of the estimated returns? *
Economic Conditions
Probability
Return
22.00/

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PLEASE PUT IT IN EXCEL, IT HAS TO BE IN EXCEL NO OTHER WAY OTHER THEN IN EXCEL. USE EXCEL! Question 2: Consider two risky assets, S and B, with the following characteristics: E(rs) 9%, Os 20% E(TB) 5%, OB 5% and PBS - 1 a) Is it possible to combine the two assets a portfolio such that the portfolio has zero risk (i.e. zero standard deviation)? If so, what is the composition of the zero risk portfolio? b) Suppose that in addition to trading in the risky assets S and B, investors can also freely buy, sell or short-sell a risk-free asset with risk-free rate rf. What must be the risk-free rate re? What would happen otherwise?
D4)
18. If one were to plot the expected returns of assets (y axis) against the systematic risk (x-axis) and construct a frontier of investments, then the indifference curves of a risk-neutral investor would: Select one or more: a. Would be straight horizontal lines b. Would be undefined and impossible to plot on such a diagram c. Would increase in utility as you go up along the y-axis d. Would be straight vertical lines e. Coincide over top the efficient frontier boundary at all points f. Would increase in utility as you go left along the x-axis
Question 1 Are the following statements true or false? Provide a short justification for your answer. (You are evaluated on your justification.) Remember that a statement is false if any part of the statement is false. A single correct counterexample is sufficient to show that a statement is false. a) assets A, B, C, with expected returns and standard deviations: Suppose you are a mean-variance optimizer. The risk-free rate is 3%. There are three risky E [řa] = 10%, SD [FA] = 5% E [řB] = 15%, SD [řB] = 7% E [řc] = 12%, SD [řc] = 9% You cannot invest in all three risky assets. Instead, you have to choose whether to invest in only assets (A, B), or only assets (A, C). Asset B mean-variance dominates asset C, since it has higher return and lower standard deviation than asset C. Thus, as long as you are risk-averse, you would always prefer the set of assets (A, B) to the set assets (A, C). b) the same market B's. The covariance matrix between A, B, C is: Suppose the CAPM holds. Consider…
A diagram of the CML and SML for the market M, risk-free asset ry, an inefficient portfolio P, and a complete portfolio C is shown below. The diagram is not to scale. E(r) E(13) CML & CALP E(12) P C E(r) M 01 02 03 P βρ SML M Вм The values of the labeled variables are E[1] = 3.0%, E[12] = 10.3%, E[3] = 16.7%, σ₁ = 17.9%, σ = 30.0%, 03 = 44.3%. What is the standard deviation of nonsystematic risk for the complete portfolio σc under the CAPM? O a. 0.1374 O b. 0.1180 O c. 0.0988 d. 0.1105 O e. 0.0791 O f. 0.0913 Og. 0.0858 O h. 0.1443
DO NOT COPY FROM OTHER WEBSITES Correct and detailed answer will be Upvoted else downvoted. Thank you!
You are given the following possible returns for Security J. Given this information, determine the coefficient of variation for Security J State Probability G 1 30% 10% 25% 18% 14% 24% 27% 2 3 4 O 0.3907 O 0.3847 O 0.3721 O 0.4040 00.3597 31%
True or false? Beta of MSFT is 0.7 and beta of RCL is 1.33. One can conclude that unsystematic risk of RCL is higher than unsystematic risk of MSFT.
Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to- variability ratio (Sharpe ratio)? O 40 O .50 O .75 O.80
2
4. Suppose there are three uncorrelated assets. Each has a variance of 1.0 and expected rates of return are 1, 2, and 3, respectively. For this example, short sales are allowed. Do the following: a. Find the minimum variance portfolio for the following desired expected portfolio rates of return: 1.0, 1.5, 2.0, 2.5, and 3.0. b. Sketch these on the return versus risk plot (you will need to use the standard deviation of the portfolio, which clearly equals sqrt(w1^2+w2^2+w3^3), where wi are the weights). c. Suppose we have a risk-free asset with a return of 2%. Modify your plot for b.
Which of the following regression outcomes indicates the asset with the greatest total risk? • large beta, small R² • small beta, large R² • small beta, small R² large beta, large R² .

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