Question three The retuns on X and Y are perfectly negative corelated. The standard deviations on these securities are 25% and 15% respectively. How much needs to be invested in X to eliminate the risk entirely? Question four Wipro provides you the following information's. Caleulate the expected rate of retun of an asset Expected market retum 15% Risk-free rate of retun 9% Standard deviation of an asset 2.4% Market Standard deviation 2.0% Corelation co-efficient of portfolio with market 0.9 Question five Share of ABE Pk has a beta of 1.5, the risk free rate of retun is 5% and the market expected retun is 9%. You want invest ABE Pk shares and the expected retun from share is 11%. Is the share overpriced according to CAPM?
Question three The retuns on X and Y are perfectly negative corelated. The standard deviations on these securities are 25% and 15% respectively. How much needs to be invested in X to eliminate the risk entirely? Question four Wipro provides you the following information's. Caleulate the expected rate of retun of an asset Expected market retum 15% Risk-free rate of retun 9% Standard deviation of an asset 2.4% Market Standard deviation 2.0% Corelation co-efficient of portfolio with market 0.9 Question five Share of ABE Pk has a beta of 1.5, the risk free rate of retun is 5% and the market expected retun is 9%. You want invest ABE Pk shares and the expected retun from share is 11%. Is the share overpriced according to CAPM?
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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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:Question three
The returns on X and Y are perfectly negative correlated. The standard deviations on these
securities are 25% and 15% respectively. How much needs to be invested in X to eliminate the
risk entirely?
Question four
Wipro provides you the following infomation's. Caleulate the expected rate of retum of an asset
Expected market retun 15%
Risk-free rate of retum 9%
Standard deviation of an asset 2.4%
Market Standard deviation 2.0%
Correlation co-effcient of portfolio with market 0.9
Question five
Share of ABE Ple has a beta of 1.5, the risk free rate of retum is 5% and the market expected
retun is 9%. You want invest ABE Pk shares and the expected retun from share is 11%. Is the
share overpriced according to CAPM?
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