Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 41%. Portfolios A and B are both well diversified. Portfolio Beta on M₁ Beta on M₂ Expected Return (%) 2.3 A B 1.8 2.2 -0.5 31 9 What is the expected return-beta relationship in this economy

Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 41%. Portfolios A and B are both well diversified. Portfolio Beta on M₁ Beta on M₂ Expected Return (%) 2.3 A B 1.8 2.2 -0.5 31 9 What is the expected return-beta relationship in this economy

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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Similar questions

Consider a firm with a beta of 1.57. If the market return is 6.73% and the risk-free rate is 0.90%, what is the firm's expected return according to the capital asset pricing model? Round your answer to four decimal places, e.g., enter 12.34 for 12.34%.
QUESTION Assume that the expected rates of return and the beta coefficients of the alternatives supplied by an independent analyst are as follows: Security Estimated rate of returns Beta Nescom 5% 1.5 Market 4 1 Pk_Steel 3.5 0.75 T_Bills 3 0 Nawab 1 -0.6 What is a beta coefficient, and how are betas used in risk analysis? Do the expected returns appear to be related to each alternative’s market risk? Is it possible to choose among the alternatives on the basis of the information developed thus far?
Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(A) to beta of B(B).
In an economy where the Capital Asset Pricing Model(CAPM) holds, the riskfree interest rate is 1%. The expected return of the market portfolio is 16% and its standard deviation is 20%. Suppose there is a portfolio with expected return of 25%. What should be its standard deviation? Select one: a.31.25% b.30% c.32% d. Insufficient information to determine the answer.
Expected return
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 49%. Portfolios A and B are both well diversified. Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.6 2.4 39 B 2.3 -0.7 9 Required: What is the expected return–beta relationship in this economy?
Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independent firm- specific components with a standard deviation of 46%. Portfolios A and B are both well diversified. Portfolio A Beta on M₁ 1.5 2.0 Beta on My 2.1 -0.6 Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(rp) = Expected Return (%) 36 14 45 60 Answer is not complete. Bp1 Bp2
Assume that both portfolios A and B are well diversified, that E(rA) = 20% and E(rB) = 15%. If the economy has only one factor, and BetaA = 1.3, whereas BetaB = 0.8, what must be the risk-free rate (write as percentage, rounded to two decimal places)?
The risky portfolio expected return and standard deviation is 14% and 20%, respectively. The risk free rate is 5%. The risk aversion coefficient A is 2.5 and 4 for Mary and Kim, respectively. Answer the following questions: A. Who is more risk averse? B. What is the capital allocation y to the risky portfolio for each investor? C. Suppose investors have the following utility function: U = E(R) - ¹2 Ao² Calculate the Utility level for each investor's optimal complete portfolio.
This question must be answered using APT i think
Total investment risk can be broken down into two types of risk. What are these two types of risk and which should NOT affect expected return? (b) A firm has a beta of 1.3. The expected market return is 12% and the risk-free rate is 2%. What should be the firm's equity cost of capital? Use CAPM

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