Question 2: 10 marks Consider the information given in the Table 2A and complete Table 2B. From the completed Table 2B, use the information to grpahically present the Security Market Line (SML). Compute the slope of this line. Hints: i) When 100% money is invested in asset X (portfolio weight 1), the beta of the portfolio is 0.85 = ii) Since the risk-free asset is, well, risk-free, its beta will be zero Table 2A Expected return for asset x (%) 13 Risk free rate (%) 5 Beta of asset X 0.85 Table 2B Expected portfolio return Portfolio beta Proportion of portfolio in Asset X 0.00 0.25 0.50 0.75 1.00 1.25 2

Question 2: 10 marks Consider the information given in the Table 2A and complete Table 2B. From the completed Table 2B, use the information to grpahically present the Security Market Line (SML). Compute the slope of this line. Hints: i) When 100% money is invested in asset X (portfolio weight 1), the beta of the portfolio is 0.85 = ii) Since the risk-free asset is, well, risk-free, its beta will be zero Table 2A Expected return for asset x (%) 13 Risk free rate (%) 5 Beta of asset X 0.85 Table 2B Expected portfolio return Portfolio beta Proportion of portfolio in Asset X 0.00 0.25 0.50 0.75 1.00 1.25 2

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 4P

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