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%
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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.
Suppose the CAPM is true. Consider two assets, X and Y, and the market M. Suppose cov(X,M) = .3, cov(Y,M) = .5. %3D (a) Is the expected return higher on X or Y? (b) Suppose var(M) = 1.5, what are the betas of X and Y? (c) Suppose the expected market return is 20% and the risk free rate is 5%, what is the expected returns of X and Y?. (d) Given your analysis in (a)-(c), what type of investor would prefer asset X to asset Y?

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