A portfolio earned 16% in the past year. The target beta is 1.0 and the actual beta was 1.20. The S. 500 index and the portfolio have a standard deviation of 12% and 20% respectively. Market returr 10% and Risk-free rate is 2%. The Net selectivity is: 0.98% 0.67% O 0.78% 0.60%

A portfolio earned 16% in the past year. The target beta is 1.0 and the actual beta was 1.20. The S. 500 index and the portfolio have a standard deviation of 12% and 20% respectively. Market returr 10% and Risk-free rate is 2%. The Net selectivity is: 0.98% 0.67% O 0.78% 0.60%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 15P

See similar textbooks

Related questions

Q: Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns…

A: To calculate expected return CAPM is used. CAPM stands for capital asset pricing model.

Q: The expected return for a stock, calculated using the CAP M is 10.5%. The market free return is 9.5%…

A: In the given question we are require to calculate the risk free rate : We can calculate the risk…

Q: The market index return is 1.3% and its standard deviation is 17%. The risk free rate is 3%.…

A: Sharp Ratio = ( Return of Portfolio - Risk free rate)/ Portfolio Standard deviation…

Q: The risk premium on the market portfolio is estimated at 8 % with a standard deviation of 22 %. What…

A: Risk premium The greater rate of return you can anticipate from riskier investments, like stocks, as…

Q: Please conduct the computation based on the following materials. What is the standard deviation of…

A: Standard deviation of portfolio consisting of three assets With weight of asset 1 (W1), weight of…

Q: The market portfolio's historical returns for the past three years were 10 percent, 10 percent, and…

A: Average market return = Sum of returns / number of returns Risk free rate of return = 0.04…

Q: Security A has a standard deviation of 10%. Security B . What is the covariance between the two…

A: We need to compute covariance and standard deviation as desired. Standard deviation of portfolio =…

Q: Suppose there is a risk-free asset whose return is 2% and that the market portfolio has an expected…

A: CAPM is a financial model that establishes a linear relationship between the expected return of an…

Q: The expected return on the Market Portfolio M is E(RM)=15%, the standard deviation is sM=25% and the…

A: A portfolio is the combination of various financial assets in which an investor (or individual) has…

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

A portfolio earned 16% in the past year. The target beta is 1.0 and the actual beta was 1.20. The S&P
500 index and the portfolio have a standard deviation of 12% and 20% respectively. Market return is
10% and Risk-free rate is 2%. The Net selectivity is:
0.98%
0.67%
0.78%
0.60%

Expert Solution

Step 1: Information required for calculation:

Expected portfolio return = 16%
Risk-free rate= 2%
Actual beta= 1.2
Target beta=
Market return= 10%
Standard deviations of portfolio= 20%
Standard deviations of S&P 500=12%

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Portfolio XYZ had a return last year of 14%. The risk-free rate of return was 3%. The market return was 10%. If Portfolio XYZ has a beta = 1.2. Portfolio XYZ had an alpha of _____. +2.6% -2.2% +4% +2.2%
The risk premium on the market portfolio is estimated at 8 % with a standard deviation of 22 %. What is the risk premium on a portfolio invested 25 % in AELZ with a beta of 1.15 and 75 % in BAT with a beta of 1.25?
The risk-free rate is currently 8.1%. Use the data in the accompanying table for the Fio family’s portfolio and the market portfolio during the year just ended to answer the questions that follow. Data Item Fio’s Portfolio Market Portfolio Rate of return 12.8% 11.2% Standard deviation of return 15.5% 9.6% Beta 1.10 1.00 Calculate Sharpe’s measure for the portfolio and the market. Compare the two measures, and assess the performance of the Fios’ portfolio during the year ended. Calculate Treynor’s measure for the portfolio and the market. Compare the two measures, and assess the performance of the Fios’ portfolio during the year ended. Calculate Jensen’s measure. Use it to assess the performance of the Fio’s portfolio during the just ended.
The market risk premium for next period is 9.00% and the risk-free rate is 2.40%. Stock Z has a beta of 1.174 and an expected return of 14.40%. What is the: a) Market's reward-to-risk ratio? b) Stock Z's reward-to-risk ratio
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 28% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 6%. Calculate the utility levels of each portfolio for an investor with A-2. Assume the utility function is U = E(r) - 0.5 x Ao². (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A=2)
The risk - free rate is 5.25%. The expected return on the market is 12% with a standard deviation of 18%. What is the standard deviation of an efficient portfolio with a 16% expected return? 7.33 % 10.12% 28.67% 19.11%
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 21% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 2%. Calculate the utility levels of each portfolio for an investor with A=2. Assume the utility function is U = E(r) Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by - 0.5 × Ag². a minus sign. WBills 0.0 0.2 0.4 0.6 0.8 1.0 WIndex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 2)
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 90 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is u = round intermediate calculations. Round your answers to 4 decimal places.) E(r) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 3) 0.5 × Ao². (Do not
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 33% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is U = E(r) Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. - 0.5 × Ag². X Answer is complete but not entirely correct. WIndex U(A = 2) 0.0111 0.0504 0.0808 x 0.1026 0.1164 X 0.1200 X WBills 0.0 0.2 0.4 0.6 0.8 1.0 1.0 0.8 0.6 0.4 0.2 0.0
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 31% per year. Assume these values are representative of Investors' expectations for future performance and that the current T-bill rate is 3%. Calculate the utility levels of each portfolio for an Investor with A = 2. Assume the utility function is u = E(r) - 8.5 x Ao². Note: Do not round Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be Indicated by a minus sign. W Bills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 Oo 0.2 0.0 U(A = 2)
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 21% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is u = E(r) - 0.5 × Ao². (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 3)
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 34% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 2%. x Ao². Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is U = E(r) - 0.5 × Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. W Bills 0.0 0.2 0.4 0.6 0.8 1.0 WIndex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 2)