Suppose that you know that the following well-diversified portfolios are fairly priced in a two-factor economy where the risk-free rate is 5%. Determine the risk premiums associated with each factor and compute the expected market risk premium for the next period based on these figures.: betal beta 2 E(r) p1 1.00 -.5 10% p2 -.5 1.50 10%

Suppose that you know that the following well-diversified portfolios are fairly priced in a two-factor economy where the risk-free rate is 5%. Determine the risk premiums associated with each factor and compute the expected market risk premium for the next period based on these figures.: betal beta 2 E(r) p1 1.00 -.5 10% p2 -.5 1.50 10%

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

See similar textbooks

Similar questions

Consider the following information: Portfolio Expected Return Beta Risk-free 5% 0 Market 12.4 1.0 A 10.4 1.7 Required: a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.7. (Round your answer to 2 decimal places.) b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) c. If the simple CAPM is valid, is the situation above possible?
Economic
You are given the following information concerning three portfolios, the market portfolio, and the risk- free asset: Portfolio X Y Z Market Risk-free Rp 14.5% R-squared 13.5 9.1 10.7 5.4 op 36% 31 21 26 0 6p 1.60 1.30 .80 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 72. What percentage of Portfolio Y's return is driven by the market? (Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places.)
Security A, standard deviation = 25% beta = 1.5 Security B, standard deviation = 40% beta = 1/3 If both securities have the same return, which should I invest in? Explain using knowledge of Capital Asset Pricing Model
Consider a three-factor APT model. The factors and associated risk premiums are: Factor Risk Premium (%) Change in gross national product (GNP) + 6.5 Change in energy prices 0.5 Change in long-term interest rates +2.9 Calculate expected rates of return on the following stocks. The risk - free interest rate is 6.8%. A stock whose return is uncorrelated with all three factors
portfolio.. - Word **** References Mailings Review View Help RCM Acrobat Foxit Reader PDF Foxit PDF 5. The risk-free rate and the expected market rate of return are 0.04 and 0.14, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.25 is equal to: a. 0.004 b. 0.165 C. 0.121 d. 0.132
The beta on risky asset A is 1.8 and the beta on risky asset Bis 1.1. The expected return on the market portfolio is 10% and the risk free rate of return is 4%. Consider a portfolio comprising the two riskypssets and the risk-free asset where you invest 50% in risky asset A and 30% in risky asset B. What is (i) the beta of a portfolio and fi) the expected return of the portfolio? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a None of the above b. (i) 0.97 and (ii) 9.829% (1) 1.23 and (ii) 9.8296 (1) 1.23 and (ii) 11.38% ) 0.97 and (ii) 11.38% e
4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of the CAPM based on the following data. a. Expected Return: 8% b. Risk-free rate: 4% c. Beta of the investment: 1.2 ER=Rf+B(ERm - Rf) where: ER = expected return of investment Rf risk-free rate B;= beta of the investment - (ERm - Rf) = market risk premium
Baghiben
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Investment Beta Analyst's Estimated Return Stock X 2.3 15.5% Stock Y 1.2 13.6% Market Portfolio 1.0 11.5% Risk-free rate 4.0% What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?
Consider two well-diversified portfolios: Portfolio 1 has an expected return of 8% and a beta of 0.80 while Portfolio 2 has an expected return of 13% and a beta of 1.50. If the risk-free rate is 1.5%, which portfolio would a rational risk-averse investor prefer and why? O A. Portfolio 2 because it has the higher reward to risk ratio. O B. Portfolio 1 because it has the higher reward to risk ratio. OC. Portfolio 2 because it has the higher reward. O D. Portfolio 1 because it has the lower risk.
6. Consider an optimal risky portfolio with expected return of 8% and standard deviation of 26% and a risk-free rate of 4%, what is the slope of the best feasible Capital Allocation Line (CAL)? a. 0.12 b. 0.15 c. 0.31 d. 0.46

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS