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
Related questions
Question
Question 2 and 4 only
Transcribed Image Text:C. 0.08
D. 0.35
2. Microsoft has a beta of 2.0. The annualized market return yesterday was 11%,
and the risk-free rate is currently 5%. You observe that Microsoft had an annualized
return yesterday of 14%. Assuming that markets are efficient, this suggests that
A. Bad news about Microsoft was announced yesterday.
B. Good news about Microsoft was announced yesterday.
C. No news about Microsoft was announced yesterday.
D. Interest rates rose yesterday.
3. Systematic risk is also referred to as
A. Market risk, non-diversifiable risk.
B. Market risk, diversifiable risk.
C. Unique risk, non-diversifiable risk.
D. Unique risk, diversifiable risk.
4. Assuming that you have invested $100 in a risky asset with an expected rate of
return of 12% and a standard deviation of 15% and a T-bill rate of 5%. How much
should you invest in the risk-free asset and the risky asset, respectively, to form a
portfolio with a standard deviation of 6%?
A. 30% and 70%
B. 50% and 50%
C. 60% and 40%
D. 40% and 60%
tum of 41 50% and
Expert Solution
Step 1
As per the Capital Asset pricing model required return of investor can be calculated as follows.
Required Return = Return Risk Free + (Market return - Return Risk Free) x Beta
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