Asset W has an expected return of 8.8 percent and a beta of .90. If the risk-free rate is 2.6 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations. Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.) Percentage of Portfolio in Asset W Portfolio Expected Return Portfolio Beta 0 % 2.60 % 25 4.15 % 0.225 50 5.70 % 0.450 75 7.25 % 0.680 100 8.80 % 0.900 125 10.35 % 1.130 150 11.90 % 1.350 If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Slope of the line %
Asset W has an expected return of 8.8 percent and a beta of .90. If the risk-free rate is 2.6 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations. Enter your expected returns as a percent rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places, e.g., 32.161.) Percentage of Portfolio in Asset W Portfolio Expected Return Portfolio Beta 0 % 2.60 % 25 4.15 % 0.225 50 5.70 % 0.450 75 7.25 % 0.680 100 8.80 % 0.900 125 10.35 % 1.130 150 11.90 % 1.350 If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Slope of the line %
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
Related questions
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
Transcribed Image Text:Asset W has an expected return of 8.8 percent and a beta of .90. If the risk-free rate is
2.6 percent, complete the following table for portfolios of Asset W and a risk-free asset.
(Do not round intermediate calculations. Enter your expected returns as a percent
rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places,
e.g., 32.161.)
Portfolio Expected
Percentage of Portfolio in
Asset W
Portfolio
Return
Beta
0 %
2.60 %
25
4.15 %
0.225
50
5.70 %
0.450
75
7.25 %
0.680
100
8.80 %
0.900
125
10.35 %
1.130
150
11.90 %
1.350
If you plot the relationship between portfolio expected return and portfolio beta, what is
the slope of the line that results? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Slope of the line
Transcribed Image Text:Consider the following information about three stocks:
Rate of Return If State Occurs
Probability of State
of Economy
State of Economy
Stock A
Stock B
Stock C
Вoom
.25
.13
.29
.60
Normal
.60
.08
.11
.13
Bust
.15
.02
-18
-.45
your portfolio is invested 40 percent each in A and B and 20 percent in C, what is
the portfolio expected return? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a- What is the variance? (Do not round intermediate calculations and round
2. your answer to 5 decimal places, e.g., .16161.)
a- What is the standard deviation? (Do not round intermediate calculations and enter
3. your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. If the expected T-bill rate is 3.70 percent, what is the expected risk premium on the
portfolio? (Do not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
c-1.If the expected inflation rate is 3.30 percent, what are the approximate and exact
expected real returns on the portfolio? (Do not round intermediate calculations and
enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c- What are the approximate and exact expected real risk premiums on the portfolio?
2. (Do not round intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
а-1.If
X Answer
not complete.
a-1. Portfolio expected return
11.01
%
a-2. Variance
0.01841
a-3. Standard deviation
13.57
%
b. Expected risk premium
7.31
%
c-1. Approximate expected real return
7.71 O %
c-1. Exact expected real return
7.46
%
c-2. Approximate expected real risk premium
%
c-2. Exact expected real risk premium
%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
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.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education