Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-blls provide a risk-free return of 5%. a. What would be the expected retum and beta of portfolios constructed from these two assets with welghts In the S&P 500 of (1) 0; (1) 0.25; (lII) 0.50; (Iv) 0.75; (v) 1.0? (Leave no cells blank - be certalin to enter "0" wherever required. Do not round Intermedlate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) Expected Return Beta (i) % (i) (ii) 0.25 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 14% and T-blls provide a risk-free return of 5%. a. What would be the expected retum and beta of portfolios constructed from these two assets with welghts In the S&P 500 of (1) 0; (1) 0.25; (lII) 0.50; (Iv) 0.75; (v) 1.0? (Leave no cells blank - be certalin to enter "0" wherever required. Do not round Intermedlate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) Expected Return Beta (i) % (i) (ii) 0.25 0.50 (iv) 0.75 % (v) 1.0
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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Transcribed Image Text:Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-blls provide a risk-free return of 5%.
a. What would be the expected returm and beta of portfolios constructed from these two assets with weights in the S&P 500 of () 0; (I)
0.25; (i) 0.50; (Iv) 0.75; (v) 1.0? (Leave no cells blank - be certain to enter "0" wherever requlred. Do not round Intermedlate
calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2
decimal places.)
Expected Return
Beta
(i)
(ii)
0.25
0.50
(iv) 0.75
(v)
1.0
b. How does expected return vary with beta? (Do not round intermediate calculations.)
by
% for a one unit increase in beta.
The expected return
7 of 10 E
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Beta is the systematic risk that all companies face in a general way. This risk is non-diversifiable risk.
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