Compute the expected rate of return of Miss Dimaano considering her security for her work as a freelance investment banker based on the following figures: Risk free rate = 4%; Expected return of the market = 12%; Systematic risk b of the security = 1.3
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- Security A has an expected return of 12.4% with a standard deviation of 15%, and a correlation with the market of 0.85. Security B has an expected return of -0.73% with a standard deviation of 20%, and a correlation with the market of -0.67. The standard deviation of rM is 12%. a. To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why? (Hint: No calculations are necessary to answer this question; it is easy.) b. What are the beta coefficients of A and B? Calculations are necessary. c. If the risk-free rate is 6%, what is the value of rM?Jerry Allen graduated from the University of Arizona with a degree in Finance in 2011 and took a job with an investment banking firm as a financial analyst. One of his first assignment is to investigate the investor-expected rate of return for technology firms: Apple (APPL), Dell (DELL) and Hewlett Packard (HPQ). Jerry’s supervisor suggested that he make his estimates using CAPM where the risk-free rate is 4.5%. the expected return on the market is 10.5% 1. Calculate the risk premium of the market show all the working formula where applicable/ 2. Calculate the expected return using CAPM equation using a beta coefficient of 2.00 3. Solve the expected return for Apple using the beta from Yahoo and the beta from MSN and a risk-free rate of 4.5% and a market risk premium of 6% yield 4. Calculate the expected return with the CAPM equation using each of the following beta estimates for the three technology firms. Present the information in a tabulated formatConsider a client with a 10% return objective. A financial adviser creates a policy statement for that client, identifies relevant financial securities that fit the risk return profile for this client, and drafts an optimal asset allocation using specialized optimization techniques. After one year, the financial adviser's recommendations produce a return of 10%. Question: Is this client satisfied with the performance of the portfolio?
- I need the answer quicklyBenefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: E. What are her expected returns and the risk from her investment in the three assets? How do they compare with investing in asset M alone? Hint: Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.)You are a portfolio manager who uses options positions to customize the risk profile of your clients. In each case, what strategy is best given your client's objective? Required: a. • Performance to date: Up 16%. • • • © Client objective: Earn at least 15%. Your forecast: Good chance of major market movements, either up or down, between now and end of the year. b. Performance to date: Up 16%. • • © Client objective: Earn at least 15%. Your forecast: Good chance of a major market decline between now and end of year. a. What strategy is best given your client's objective? b. What strategy is best given your client's objective?
- Subject name: Principles of Insurance and Risk Management, Answer it fast please.The following information applies to Problems 22 through 27: Greta has risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continu- ously compounded.) The S&P 500 risk premium is estimated at 5% per year, with a standard devia- tion of 20%. The hedge fund risk premium is estimated at 10% with a standard deviation of 35%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. 22. Compute the estimated annual risk premiums, standard deviations, and Sharpe ratios for the two portfolios. 23. Assuming…You are considering a risky investment that you expect will either be worth 165,000 in 1 year, or 95,000, with probabilities of 0.6 and 0.4 for each outcome, respectively. You could invest in riskless T-bills at 0.047. If you invest in this risky investment, you would expect to earn a risk premium of 0.073 Given this information, what would you be willing to pay for this investment? O 113,881 O 106,615 O 118,358 O 122,321 O 109,991
- Dakota & Munroe invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. The firm's goal is to form a client portfolio that has an expected return of $ 114. Given this information , how can the firm accomplish it goal?Anna holds a portfolio comprising the following 3 stocks: X, Y and Z. Investment Amount Beta. Expected return Security X $2000. 1.3. Security Y $1000. 1. 10% Security Z. $500. 0. 2% a. Determine the expected return of security X. b. Calculate the return of Anna’s portfolio. c. Calculate the beta of Anna’s portfolio. d. To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio’s systematic risk? How would portfolio expected return change (higher or lower) if you add this security?Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: What are her expected returns and the risk from her investment i three assets? How do they compare with investing in asset M alone? Hint. Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) States Boom Probability 27% Asset M Return 13% 10% Normal 48% Recession 25% 1% Asset N Return 23% 15% 3% Asset O Return 1% 10% 13% X