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- If a portfolio has a positive investment in every asset, can the standard deviation on the portfolio be less than that on every asset in the portfolio? What about the portfolio beta?The security market line has a slope equal to the a) Risk-free rate b) Market risk premium c) Beta coefficient d) Market rate of returnAccording to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0 is:a. Between rM and rf .b. The risk-free rate, rf .c. β(rM − rf).d. The expected return on the market, rM.
- Beta and expected returnOne important assumption behind portfolio theory is that investors are “mean-variance maximizers.” What is the meaning of this? Explain why this assumption is important in the delineation of the efficient frontier.The beta of an investment measures the probability weighted expected rate of return of a portfolio. True False
- Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(βA) to beta of B(βB).The beta of the portfolio containing assets X, Y, and Z, isThe expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returns
- What is the Capital Asset Pricing Model (CAPM)? Derive the risk premium when beta is between 0 and 1. Interpret your result.The beta of a market-neutral portfolio is zero. O True O FalseAssume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (βA) to beta of B (βB).