Mr. Ota is an analyst for a large pension fund and he has been assigned the task of evaluating twodifferent external portfolio managers (K and C). He considers the following historical average return,standard deviation, and CAPM beta estimates for these two managers over the past five years:Actual Average Standard deviationPortfolioBetaReturnManager KManager C7.80%10.05%0.7512.0%15.50%1.45Additionally, Mr. Ota estimate for the risk premium for the market portfolio is 5.40% and the risk-freerate is currently 2.50%.a. For both Managers K and C, calculate the expected return using the CAPM. Express your answersto the nearest basis point (i.e., xX.XX%)

Financial statements are statements which states the business activities performed by the company .…

Mr. Ota is an analyst for a large pension fund and he has been assigned the task of evaluating two different external portfolio managers (K and C). He considers the following historical average retum. standard deviation, and CAPM beta estimates for these two managers over the past five years: Portfolio Actual Average Standard deviation Return 7.80% Beta Manager K Manager C 10.05% 0.75 12.0% 15.S0% 1.45 Additionally, Mr. Ota estimate for the risk premium for the market portfolio is 5.40% and the risk-free rate is currently 2.50%. a. For both Managers K and C, calculate the expected return using the CAPM. Express your answers to the nearest basis point (ie., XX.Xx%)

Mr. Ota is an analyst for a large pension fund and he has been assigned the task of evaluating two different external portfolio managers (K and C). He considers the following historical average retum. standard deviation, and CAPM beta estimates for these two managers over the past five years: Portfolio Actual Average Standard deviation Return 7.80% Beta Manager K Manager C 10.05% 0.75 12.0% 15.S0% 1.45 Additionally, Mr. Ota estimate for the risk premium for the market portfolio is 5.40% and the risk-free rate is currently 2.50%. a. For both Managers K and C, calculate the expected return using the CAPM. Express your answers to the nearest basis point (ie., XX.Xx%)

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

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A financial planner is examining the portfolios held by several of her clients. Which of the following portfolios is likely to have the smallest standard deviation? OA portfolio with 10 randomly selected U.S. stocks. O A portfolio with 10 randomly selected international stocks. OA portfolio with 10 randomly selected stocks from U.S. and international markets. Portfolio managers pick stocks for their clients' portfolios based on the investment objective of the portfolio and several other factors. One key consideration is each stock's contribution to portfolio risk and its statistical relationship with the portfolio's other stocks. Based on your understanding of portfolio risk, identify whether each statement is true or false. Statement A portfolio's risk is likely to be smaller than the average of all stocks' standard deviations, because diversification lowers the portfolio's risk. Because of the effects of diversification, the portfolio's risk is likely to be more than the average of…
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