Consider the following information relating to the following three assets: Asset C, the 10 year government bond rate (which can be used as a proxy for the risk-free rate of return) and the ASX 200 index (which can be used as a proxy for the market portfolio). Asset C: Standard deviation of returns (p.a.) 0.35, Expected return (p.a.)? 10-year gov't bond: Standard deviation of returns (p.a.) 0, Expected return (p.a.) 0.03 ASX200 Index: Standard deviation of returns (p.a.) 0.15, Expected return (p.a.) 0.10 Correlation between Asset C and the 10-year government bond: 0 Correlation between Asset C and the ASX200 Index: 0.65 Correlation between the ASX200 Index and the 10-year government bond: 0 (a) What is the beta of Asset C? (to 2 decimal places) (b) According to the CAPM what is the expected return of Asset C? (express as a percentage figure to 2 decimal places e.g. 50.04%) (c) According to the CAPM what is the beta and expected return of a portfolio consisting of a 50% investment in Asset C and a 50% investment in a diversified portfolio that replicates the ASX200? (express your answers as in (a) and (b))
Consider the following information relating to the following three assets: Asset C, the 10 year government bond rate (which can be used as a proxy for the risk-free rate of return) and the ASX 200 index (which can be used as a proxy for the market portfolio). Asset C: Standard deviation of returns (p.a.) 0.35, Expected return (p.a.)? 10-year gov't bond: Standard deviation of returns (p.a.) 0, Expected return (p.a.) 0.03 ASX200 Index: Standard deviation of returns (p.a.) 0.15, Expected return (p.a.) 0.10 Correlation between Asset C and the 10-year government bond: 0 Correlation between Asset C and the ASX200 Index: 0.65 Correlation between the ASX200 Index and the 10-year government bond: 0 (a) What is the beta of Asset C? (to 2 decimal places) (b) According to the CAPM what is the expected return of Asset C? (express as a percentage figure to 2 decimal places e.g. 50.04%) (c) According to the CAPM what is the beta and expected return of a portfolio consisting of a 50% investment in Asset C and a 50% investment in a diversified portfolio that replicates the ASX200? (express your answers as in (a) and (b))
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 20P
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![Consider the following information relating to the following three assets: Asset C, the 10 year government
bond rate (which can be used as a proxy for the risk-free rate of return) and the ASX 200 index (which can
be used as a proxy for the market portfolio).
Asset C: Standard deviation of returns (p.a.) 0.35, Expected return (p.a.) ?
10-year gov't bond: Standard deviation of returns (p.a.) 0, Expected return (p.a.) 0.03
ASX200 Index: Standard deviation of returns (p.a.) 0.15, Expected return (p.a.) 0.10
Correlation between Asset C and the 10-year government bond: 0
Correlation between Asset C and the ASX200 Index: 0.65
Correlation between the ASX200 Index and the 10-year government bond: 0
(a) What is the beta of Asset C? (to 2 decimal places)
(b) According to the CAPM what is the expected return of Asset C? (express as a percentage figure to 2
decimal places e.g. 50.04%)
(c) According to the CAPM what is the beta and expected return of a portfolio consisting of a 50%
investment in Asset C and a 50% investment in a diversified portfolio that replicates the ASX200? (express
your answers as in (a) and (b))](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3933e659-0e4e-4082-b0d0-cddeecd047c4%2F348a5125-1a9a-4393-b4ae-1803c91b945a%2Fwujsjcc_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the following information relating to the following three assets: Asset C, the 10 year government
bond rate (which can be used as a proxy for the risk-free rate of return) and the ASX 200 index (which can
be used as a proxy for the market portfolio).
Asset C: Standard deviation of returns (p.a.) 0.35, Expected return (p.a.) ?
10-year gov't bond: Standard deviation of returns (p.a.) 0, Expected return (p.a.) 0.03
ASX200 Index: Standard deviation of returns (p.a.) 0.15, Expected return (p.a.) 0.10
Correlation between Asset C and the 10-year government bond: 0
Correlation between Asset C and the ASX200 Index: 0.65
Correlation between the ASX200 Index and the 10-year government bond: 0
(a) What is the beta of Asset C? (to 2 decimal places)
(b) According to the CAPM what is the expected return of Asset C? (express as a percentage figure to 2
decimal places e.g. 50.04%)
(c) According to the CAPM what is the beta and expected return of a portfolio consisting of a 50%
investment in Asset C and a 50% investment in a diversified portfolio that replicates the ASX200? (express
your answers as in (a) and (b))
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