Based on the information in the yellow shaded areas: a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?
Based on the information in the yellow shaded areas: a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?
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
Question
Based on the information in the yellow shaded areas:
a) Plot the Security Market Line (SML)
b) Superimpose the
c) Indicate which investments will plot on, above and below the SML?
Transcribed Image Text:State of the Economy
Recession
Below Average
Average
Above Average
Boom
Mean
Standard Deviation
Coefficient of Variation
Covariance with MP
Correlation with Market
Index
Beta
CAPM Req. Return
Valuation
(Overvalued/Undervalued/F
airly Valued)
Nature of Stock
(Aggressive/Defensive)
Probabili
ty
0.2
0.1
0.3
0.3
0.1
T-Bills
7
7
7
7
7
7
0.0
0.0
0.0
0.0
% Return on T-Bills, Stocks and Market
Index
Phillips
-22
-2
20
35
50
16.90
23.43
1.39
0.04
1.00
Pay-up Rubber-
made
10
-10
7
45
30
19.60
18.92
0.97
0.02
0.69
28
14.7
0
-10
-20
2.07
15.63
7.55
-0.03
-1
Market
Index
-13
1
15
29
43
15
17.71
1.18
0.03
1
0.0
1.32
-0.88
7
17.54
-0.02
Fairly Overvalued Under-
valued
valued
Defensive Aggressive Defensive Defensive Defensive
0.74
12.89
Underval
ued
1
15
Fairly
Valued
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