Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 4%.a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of(1) 0; (2) 0.25; (3) 0.50; (4) 0.75; (5) 1.0?Note: Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations. Enter thevalue of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.× Answer is complete but not entirely correct.Expected ReturnBeta(1) 04.00%0.00(2) 0.259.75 %0.25(3) 0.5015.50%0.50(4) 0.75(5) 1.021.25 %0.7527.00%1.00b. How does the expected return vary with beta?Note: Do not round intermediate calculations.> Answer is complete but not entirely correct.by 23 % for a one unit increase in beta.The expected returnincreases

The problem involves the determination of the expected return and the beta. Expected return refers…

Answered: Suppose that the S&P 500, with a beta…

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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Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-bills provide a risk-free return of 5%. a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) b. How does expected return vary with beta? (Do not round intermediate calculations.)
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 6%. a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0?
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 4%. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0? How does expected return vary with beta?
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 12% and T-bills provide a risk- free return of 5% a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (1) 0; (2) 0.25; (3) 0.50; (4) 0.75; (5) 1.0 ? Note: Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places. b. How does the expected return vary with beta? Note: Do not round intermediate calculations.
Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 12% and T-bills provide a risk-free return of 3% a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of Expected Return Beta (i) 0 (ii) 0.25 (iii) 0.50 (iv) 0.75 (v) 1.0 (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) b. How does expected return vary with beta? (Do not round intermediate calculations.) Fill in the bolded part The expected return (increases/decrease) by ( %) for a one unit increase in beta.
Suppose the risk-free rate is 5%. The expected return and standard deviation of a risky asset are 10% and 20%, respectively. a. What is the slope of the capital allocation line (CAL) constructed using the risk-free asset and the risky asset? A. 0.30 B. 0.15 C. 0.25 D. 0.20 b. If an investor has a risk aversion coefficient of A=2, what is the optimal fraction of the money that she invests in the risky asset? A. 62.5% B. 42.5% C. 30% D. 20% c. If an investor invest 25% of her money in the risky asset, which is the investor’s risk aversion coefficient? a. 5 b. 1 c. 3 d. 4
The risk-free rate and the expected market return are 5% and 12%, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 2 is equal to: a 19% b 29% c 12% d 10% e 15%
If E(rX)=0.12 and E(rY)=0.08, what would be the expected rate of return of a portfolio made of 30% of X and 70% of Y? A. 0.080 B. 0.120 C. 0.108 D. 0.092 E. 0.100
1. Given the following summary statistics, Mean S.D. 1.235 0.997 Asset A 0.52 Asset B. 0.44 (a) If the correlation between the two financial series is 0.25. What are the optimal portfolio weights to minimize risk? (b) What are the expected return and standard deviation of the optimal port- folio? (c) Compute the 1% Value-at-Risk for the next 5 days (d) Compute the expected shortfall
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Suppose there is a risk-free asset whose return is 2% and that the market portfolio has an expected return of 10%. The standard deviation of the market portfolio is given 25%.(a) Find the security market line.(b) Suppose there is an asset whose covariance with the market is given by 450%^2. Find its equilibrium price according to CAPM.

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