Explain the micro factors and macro factors which affect the cost of money? What are the conclusions of Beta stability tests and Tests based on the slope of the SML? (hint: refer to Ch 25 in the textbook) Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.35, what are the expected return and standard deviation for a portfolio comprised of 40 percent Asset A and 60 percent Asset B? 1) Calculate what is called Beta, , from the table below (hint : use excel for calculation for beta) and then 2) make the equation with beta and intercept to calculate the expected return of i asset. (hint; use SML equation in Chapter 25 and rRF=5%, M =9% ) Year M i 1 16% 19% 2 -6% -11% 3 12% 17% 4 14% 19% Calculate the expected return of portfolio and standard deviation of portfolio of 3 Assets (Security B, C, and D) (Hints: Assume that weights of B, C, and D are , respectively; the expected rate of return for Security B, C, and D is 9.9%, 1.2%, 7.3%, respectively)? Prob. Security A Security B Security C Security D Security E Recession 0.1 3.0% -29.5% 24.5% 3.5% -19.5% Below avg. 0.2 3.0% -9.5% 10.5% -16.5% -5.5% Average 0.4 3.0% 12.5% -1.0% 0.5% 7.5% Above avg. 0.2 3.0% 27.5% -5.0% 38.5% 22.5% Boom 0.1 3.0% 42.5% -20.0% 23.5% 35.5%
Explain the micro factors and macro factors which affect the cost of money? What are the conclusions of Beta stability tests and Tests based on the slope of the SML? (hint: refer to Ch 25 in the textbook) Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.35, what are the expected return and standard deviation for a portfolio comprised of 40 percent Asset A and 60 percent Asset B? 1) Calculate what is called Beta, , from the table below (hint : use excel for calculation for beta) and then 2) make the equation with beta and intercept to calculate the expected return of i asset. (hint; use SML equation in Chapter 25 and rRF=5%, M =9% ) Year M i 1 16% 19% 2 -6% -11% 3 12% 17% 4 14% 19% Calculate the expected return of portfolio and standard deviation of portfolio of 3 Assets (Security B, C, and D) (Hints: Assume that weights of B, C, and D are , respectively; the expected rate of return for Security B, C, and D is 9.9%, 1.2%, 7.3%, respectively)? Prob. Security A Security B Security C Security D Security E Recession 0.1 3.0% -29.5% 24.5% 3.5% -19.5% Below avg. 0.2 3.0% -9.5% 10.5% -16.5% -5.5% Average 0.4 3.0% 12.5% -1.0% 0.5% 7.5% Above avg. 0.2 3.0% 27.5% -5.0% 38.5% 22.5% Boom 0.1 3.0% 42.5% -20.0% 23.5% 35.5%
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
- Explain the micro factors and macro factors which affect the cost of money?
- What are the conclusions of Beta stability tests and Tests based on the slope of the SML? (hint: refer to Ch 25 in the textbook)
- Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.35, what are the expected return and standard deviation for a portfolio comprised of 40 percent Asset A and 60 percent Asset B?
- 1) Calculate what is called Beta, , from the table below (hint : use excel for calculation for beta) and then 2) make the equation with beta and intercept to calculate the expected return of i asset. (hint; use SML equation in Chapter 25 and rRF=5%, M =9% )
Year |
M |
i |
1 |
16% |
19% |
2 |
-6% |
-11% |
3 |
12% |
17% |
4 |
14% |
19% |
- Calculate the expected return of portfolio and standard deviation of portfolio of 3 Assets (Security B, C, and D) (Hints: Assume that weights of B, C, and D are , respectively;
the expected
Prob. |
Security A |
Security B |
Security C |
Security D |
Security E |
|
Recession |
0.1 |
3.0% |
-29.5% |
24.5% |
3.5% |
-19.5% |
Below avg. |
0.2 |
3.0% |
-9.5% |
10.5% |
-16.5% |
-5.5% |
Average |
0.4 |
3.0% |
12.5% |
-1.0% |
0.5% |
7.5% |
Above avg. |
0.2 |
3.0% |
27.5% |
-5.0% |
38.5% |
22.5% |
Boom |
0.1 |
3.0% |
42.5% |
-20.0% |
23.5% |
35.5% |
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