In this problem we assume that the annual expected rate of return of the market portfolio is 22%and the annual risk-free rate is 2%. The standard deviation of the market portfolio returns is 22%.Assume the market is in equilibrium such that the Capital Asset Pricing Model (CAPM) holds: themarket portfolio is efficient.If you have $1,000 to invest, how should you allocate it to achieve an annual expected return of26%?Invest $260 in the risk-free asset and $740 in the market portfolioInvest $800 in the risk-free asset and $200 in the market portfolioInvest $1,200 in the risk-free asset and sell short $200 in the market portfolioBorrow $260 at the risk-free rate and invest $1,260 in the market portfolioInvest $200 in the risk-free asset and $800 in the market portfolioBorrow $200 at the risk-free rate and invest $1,200 in the market portfolio

The capital asset pricing model aids analysts and investors in calculating the expected return on…

Answered: If you have $1,000 to invest, how…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

You have $500,000 available to invest. The risk-free rate, as well as your borrowing rate, is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should ________. invest $125,000 in the risk-free asset invest $375,000 in the risk-free asset borrow $125,000 Invest 80 000 in the risk free asset borrow $375,000
An analyst has the following projected free cash flows for an investment: Year 1: $125,050; Year 2: $137,650; Year 3 to15: $150,000 a year; Year 16 to 20: $200,000 a year. The investment is expected to have a terminal value of $500,000 at the end of Year 20. If the analyst has estimated a present value of $3 millions for the investment, what is the discount rate that she/he has used in calculations. A. % 1.37 B. % 1.78 C. % 2.12 D. % 3.25
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: Cash flow: 0 1 -$233,000 $65,600 MIRR 2 $83,800 % 4 $140,800 $121,800 Use the MIRR decision rule to evaluate this project. Note: Do not round intermediate calculations and round your final answer to 2 decimal places. 5 $81,000
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: Cash flow: 0 -$15, 200 MIRR 1 $3,000 3 2 $4,200 $3,400 Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) % 5 $3,400 $3,200 6 $3,000
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: Cash flow: 0 2 3 4 5 -$5,400 $1,600 $2,800 $2,000 $2,000 $1,800 Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) 6 $1,600
on this repurchase agreement. (a) You are investing GHS100,000 in an investment portfolio made up of a risky ass and a T/Bill. The expected return of the risky asset is 11% and its standard deviation is 20% The rate of return of the T/Bill is 3% (a) Compute what percentages of your funds must be invested in the risky asset and the risk-free asset so that the expected return of your investment portfolio is 8% (b) Compute what percentages of your funds must be invested in the risk-free asset and the risky asset to form a portfolio with a standard deviation of 8%.
You are thinking about investing in a project that will provide you a cash flow of $78922 in 3 years and of $88519 in 4 years. If your required return on investments of this risk is 15.14%, how much are you willing to pay for this opportunity? Round to 2 decimal places. Include a dollar sign ($) or percent (%) as appropriate. Answer:
An investment will provide the following future cash flows. Year 1 = 5,919 Year 2 = 8,327 Year 3 and 4 = 4,718 Year 5 = 3,048 Using a 9.01% discount rate, what is the present value of this investment?
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: Cash flow: 0 4 -$5,000 $1,200 $2,400 $1,600 $1,600 $1,400 Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final onswer to 2 decimal places.) Answer is complete but not entirely correct. IRR 6 $1,200 14.00 %
You are considering the purchase of real estate that will provide perpetual income that should average $54,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio’s? The T-bill rate is 6%, and the expected market return is 9.0%. Property Value =
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $75,000with a probability of 25%, $125,000 with a probability of 50%, or $140,000 with a probability of 25%.The alternative risk-free investment in T-bills pays 4% per year. a) If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?b) What is the Sharpe ratio of the portfolio if you can purchase it at the price calculated above?
You invest $96 in a risky asset and the T-bill. The risky asset has an expected rate of return of 19% and a standard deviation of 0.22, and a T-bill with a rate of return of 4%. A portfolio that has an expected outcome of $110 is formed by investing what dollar amount in the risky asset? Round your answer to the nearest cent (2 decimal places).

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS