Quiz# 5 (Q) The following are estimates for four risk assets (A,B,C,D). The portfolio P is an equal weighted portfolio of the four risk assets. weight B Systematic Residual Total risk (S.D.) risk (S.D.) risk(S.D.) Stock A 0.25 0.8 16% 30% 34.0% Stock B 0.25 1.0 20% 35% 40.3% Stock C 0.25 1.2 24% 45% 51.0% Stock D 0.25 1.4 28% 40% 48.8% Portfolio P 1.00 wips 1Calculate systematic risk (standard deviation of systemat return) of the portfolio (%) 2Calculate residual risk (S.D.) of the portfolio (%) 3Calculate Pearson correlation between returns of A and B (Round to the third decimal place) 4 Explain why The CAPM is not testable (10-30words)
Quiz# 5 (Q) The following are estimates for four risk assets (A,B,C,D). The portfolio P is an equal weighted portfolio of the four risk assets. weight B Systematic Residual Total risk (S.D.) risk (S.D.) risk(S.D.) Stock A 0.25 0.8 16% 30% 34.0% Stock B 0.25 1.0 20% 35% 40.3% Stock C 0.25 1.2 24% 45% 51.0% Stock D 0.25 1.4 28% 40% 48.8% Portfolio P 1.00 wips 1Calculate systematic risk (standard deviation of systemat return) of the portfolio (%) 2Calculate residual risk (S.D.) of the portfolio (%) 3Calculate Pearson correlation between returns of A and B (Round to the third decimal place) 4 Explain why The CAPM is not testable (10-30words)
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.
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Quiz# 5
(Q) The following are estimates for four risk assets (A,B,C,D). The
portfolio P is an equal weighted portfolio of the four risk assets.
weight
B
Systematic
Residual
Total risk
(S.D.)
risk (S.D.)
risk(S.D.)
Stock A
0.25
0.8
16%
30%
34.0%
Stock B
0.25
1.0
20%
35%
40.3%
Stock C
0.25
1.2
24%
45%
51.0%
Stock D
0.25
1.4
28%
40%
48.8%
Portfolio P
1.00
Calculate systematic risk (standard deviation of systematic
return) of the portfolio (%)
Calculate residual risk (S.D.) of the portfolio (%)
3Calculate Pearson correlation between returns of A and B
(Round to the third decimal place)
4 Explain why The CAPM is not testable
(10-30words)
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