Assume we beleive a 1 factor APT model describes securities returns. Consider 2 assets with the following dataSecurityABSuppose the relevant variances are:ComponentSystematic FactorExpected Return5.65%9.06%€ AEBVariance10.03650.03870.039Beta0.51.61. The beta of an equally weighted portfolio is: Number2. The the variance of an equally weighted portfolio is (answer exactly): Number3. Compute the risk free rate : Number

We need to use the formulae inscribed in portfolio management for arbitrage pricing theory ( APT ).…

Assume we beleive a 1 factor APT model describes securities returns. Consider 2 assets with the following data Security B Suppose the relevant variances are: Component Systematic Factor Expected Return 5.65% 9.06% € A B Variance 0.0365 0.0387 0.039 Beta 0.5 1.6 1. The beta of an equally weighted portfolio is: Number 2. The the variance of an equally weighted portfolio is (answer exactly): Number 3. Compute the risk free rate : Number

Assume we beleive a 1 factor APT model describes securities returns. Consider 2 assets with the following data Security B Suppose the relevant variances are: Component Systematic Factor Expected Return 5.65% 9.06% € A B Variance 0.0365 0.0387 0.039 Beta 0.5 1.6 1. The beta of an equally weighted portfolio is: Number 2. The the variance of an equally weighted portfolio is (answer exactly): Number 3. Compute the risk free rate : Number

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

Assume we beleive a 1 factor APT model describes securities returns. Consider 2 assets with the following data
Security
A
B
Suppose the relevant variances are:
Component
Systematic Factor
Expected Return
5.65%
9.06%
€ A
EB
Variance
10.0365
0.0387
0.039
Beta
0.5
1.6
1. The beta of an equally weighted portfolio is: Number
2. The the variance of an equally weighted portfolio is (answer exactly): Number
3. Compute the risk free rate : Number

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