If a fund has a return of 10% and a beta of 1.5, and if the risk-free rate is 5%, and market return rate is 8%, calculate Jensen's Alpha O a. 0.5 O b. 1.4 O c. 0.65
Q: Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%. An…
A: The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1…
Q: Given the current risk-free rate is 9% and the market return is 12%. Investment Beta A 0.65 1.12…
A: The required rate of return represents the minimum return investors willing to accept for the given…
Q: Using the following data: Scenario Probability return K1 return K2 0.2 -10% 5% W2 0.4 0% 30% W3 0.4…
A: Excel Spreadsheet: Excel Workings:
Q: The average returns, standard deviation and betas for three funds and the S&P are given below. The…
A: Here, Risk-free Return (Rf) is 3% To create a complete portfolio, the investor uses Fund A and…
Q: Asset A has an expected return of 10%. The expected market return is 14% and the risk-free rate is…
A: The calculation is shown: Hence, answer C is the correct option.
Q: harpe’s ratio of the Fund A is 1.5, if the beta of Fund A is 1.2, and risk of the fund is 10,…
A: Solution Given Sharpe’s ratio of the Fund A 1.5 beta of Fund A 1.2 risk of the fund…
Q: a. What is the market risk premium (M-FRF)? Round your answer to two decimal places. 96 b. What is…
A: CAPM is the model that is used to show the linear relation between systematic risk…
Q: The risk-free rate and the expected market return are 5% and 12%, respectively. According to the…
A: The model that explains the association between expected return and systematic risk is called the…
Q: f a fund has a return of 12% and a standard deviation of 15%, and if the risk-free rate is 2%, then…
A: Sharpe ratio measures risk premium of an asset per unit of risk.
Q: Based on the following probability distribution, what is the security's expected return? State…
A: Formula: Expected return = Specific probability * Specific return or pay off
Q: An optimal risk portfolio’s expected return is 14%, standard deviation is 22%. If risk-free rate is…
A: The tradeoff between the return and risk of the portfolio is measured by the slope of CAL(Capital…
Q: Suppose the risk-free rate is 6 percent and the market portfolio has an expected return of 12…
A: The question can be answered by determining the expected return for the stock using the capital…
Q: Consider the multifactor model APT with three factors. Portfolio A has a beta of 0.8 on factor 1, a…
A: A combination of different types of securities for the investment is term as the portfolio.
Q: You plan to invest in either a mutual fund X or mutual fund Y. The following information about the…
A: Two asset portfolio expected return: The anticipated return on an investment is the value assigned…
Q: Calculate the expected return for an investment with the following probability distribution. Return…
A: The expected return is the return of the portfolio which is the sum of each potential return that is…
Q: If a fund has a return of 12% and a beta of 1.4, and if the risk-free rate is 2%, then what is its…
A: Treynor ratio measures excess of return generated over risk free rate per unit of risk .
Q: Suppose the risk-free rate is 5%. The expected return and standard deviation of a risky asset are…
A: Expected return (Re) = 10% Risk free rate (Rf) = 5% Standard deviation (SD) = 20%
Q: 6. Consider an optimal risky portfolio with expected return of 8% and standard deviation of 26% and…
A: The slope of the best feasible Capital Allocation Line (CAL) of the optimal portfolio as follows:…
Q: f a fund has a return of 12% and a beta of 1.4, and if the risk-free rate is 2%, and market return…
A: Alpha of stock is excess return earned over the return calculated by CAPM.
Q: For each of the cases shown in the following table, use the capital asset pricing model (CAPM) to…
A: While making investment decisions, investors, be it individuals or firms will have to perform an…
Q: The risk-free rate is currently 3.3%, and the market return is 14.8%. Assume you are considering…
A: The capital asset pricing model is a model used to determine a theoretically appropriate required…
Q: The Manhawkin Fund has an expected return of 16% and a standard deviation of 20%. The risk-free rate…
A: Given: Expected return = 16% = 0.16 Standard deviation = 20% = 0.20 Risk-free rate = 4% = 0.04
Q: Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%. An…
A: The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1…
Q: Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is…
A: COST OF EQUITY Cost of Capital is the minimum rate of return that must be earned on investments, in…
Q: Consider the following risk-return characteristics for funds A and B: Expected return Risk Fund A…
A: The objective of the question is to determine which fund is riskier and to calculate the weights,…
Q: Father Time asks us what is the expected return on asset A if it has a beta of .75, the expected…
A: In the given question we require to calculate the Expected return on Asset A using the following…
Q: Consider the following information for four portfolios, the market, and the risk-free rate (RFR):…
A: Jensen's Alpha = Return - [Risk free rate + Beta * (Market Return - Risk free rate)]
Q: What is the expected market return if the expected return on asset A is 19% and the risk free rate…
A: A model that represents the relationship of the required return and beta of a particular asset is…
Q: An investment has probabilities 0.15, 0.34, 0.44, 0.67, 0.2 and 0.15 of giving returns equal to 50%,…
A: Expected Return is the expected value of the probability distributions of the possible returns…
If a fund has a return of 10% and a beta of 1.5, and if the risk-free rate is 5%, and market return rate is 8%, calculate Jensen's Alpha
O a. 0.5
O b. 1.4
O c. 0.65
O d. 0.42
Step by step
Solved in 2 steps
- If a fund has a return of 12% and a beta of 1.4, and if the risk-free rate is 2%, and market return rate is 8%, calculate Jensen's Alpha O a. 3.6 Ob. 2.4 O c. 1.6 Od. 1.4If a fund has a return of 12% and a beta of 1.4, and if the risk-free rate is 2%, then what is its Treynor ratio O a. 7.14 Ob. 2.35 O c. 3.14 O d. 5.35Please help answer this question.
- Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14Consider the following risk-return characteristics for funds A and B: Expected return Risk Fund A (Equity) 12% 20% Fund B (Debt) 9% 16% The correlation coefficient between the returns of fund A and fund B is 0.4. 1. Which Fund is riskier? Write 1 if your answer is Fund A, write 2 if your answer is Fund B, or write 3 if your answer is undetermined. 2.1 What is the weight of fund A in the minimum variance portfolio? 2.4 What is the risk of the minimum variance portfolio? 2.2 What is the weight of Fund B in the minimum variance portfolio? 2.3 What is the expected return of the minimum variance portfolio?You plan to invest in either a mutual fund X or mutual fund Y. The following information about the annual return (%) of each of these investments under different demand levels is available, along with the probability that each of these states of nature will OCcur: Demand Probability Fund X Fund Y High 0.4 30% 25% Medium 0.4 22% 34% low 0.2 17% 25% a) Compute expected return, standard deviation for each investment and covariance of the mutual fund X and mutual fund Y. b) Would you invest in the mutual fund X or Y? Explain. c) If you chose to invest in mutual fund X and the state of nature turns up to be the low demand, what do you think about the possibility of the opportunity loss of 8% in comparison to investing in mutual fund Y?
- Calculate the expected return for an investment with the following probability distribution. Return (%) Probability (%) -10 20 5 20 10 20 17 30 26 10Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .The risk-free rate and the expected market return are 5% and 12%, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 2 is equal to: a 19% b 29% c 12% d 10% e 15%
- Portfolio theory with two assets E(R1)=0.15 E(01)= 0.10 W1=0.5 E(R2)=0.20 E(02) = 0.20 W2=0.5 Calculate the expected return and the standard deviation of the two portfolios if r1,2 = 0.4 and -0.60 respectively.Sharpe’s ratio of the Fund A is 1.5, if the beta of Fund A is 1.2, and risk of the fund is 10, Treynor’s index for the same fund is a. 11.5 b. 13.75 c. 12.5 d. 15The risk-free rate is currently 3.3%, and the market return is 14.8%. Assume you are considering the following investments: Investment Beta A 1.54 B 1.16 C 0.51 D 0.11 E 2.14 . a. Which investment is most risky? Least risky? b. Use the capital asset pricing model (CAPM) to find the required return on each of the investments. c. Find the security market line (SML), using your findings in part b. d. On the basis of your findings in part c, what relationship exists between risk and return? Explain.