Consider historical data showing that the average annual Fate roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 38% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 2%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below. Note: Round your "Expected Return" answers to 2 decimal places and "Variance" answers to 4 decimal places. W Bills 0.0 0.2 Windex 1.0 08 Expected Return 10.00 % % Variance 0.1444 Example EMPEREENT

Consider historical data showing that the average annual Fate roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 38% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 2%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below. Note: Round your "Expected Return" answers to 2 decimal places and "Variance" answers to 4 decimal places. W Bills 0.0 0.2 Windex 1.0 08 Expected Return 10.00 % % Variance 0.1444 Example EMPEREENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 15P

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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

years has averaged
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85
roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 38% per year. Assume these
values are representative of investors' expectations for future performance and that the current T-bill rate is 2%.
Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below.
Note: Round your "Expected Return" answers to 2 decimal places and "Variance" answers to 4 decimal places.
WBills
0.0
02
0.4
0.6
0.8
1.0
Windex
1.0
0.8
OC
0.6
04
0.2
0.0
Expected Return
10.00 %
%
%
%
%
%
Variance
0.1444 Example

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