The expected market return is 5%. The risk-free rate is 3% . According to the CAPM equation, what is the expected return on an asset which has alpha-1.5%, and beta-1.9 ? O a. 11.0% O b. 5.3% O c. 5% O d. 6.8% O e. 8.3%

The expected market return is 5%. The risk-free rate is 3% . According to the CAPM equation, what is the expected return on an asset which has alpha-1.5%, and beta-1.9 ? O a. 11.0% O b. 5.3% O c. 5% O d. 6.8% O e. 8.3%

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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Risk-free rate is 7%, expected return on the market portfolio is 12%. Identify the correct equation for Security Market Line (SML): a. r = 5% + b(7%) b. r = 7% + b (12%) c. r = 7% + b (5%) d. r = 5% + b (12%)
Asset W has an expected return of 13.4 percent and a beta of 1.6. If the risk-free rate is 5.0 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations and enter your expected return answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 3 decimal places, e.g., 32.161.) Asset W has an expected return of 13.4 percent and a beta of 1.6. If the risk-free rate is 5.0 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations and enter your expected return answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 3 decimal places, e.g., 32.161.)
Assume that the short-term risk-free rate is 6%, the market index S&P500 is expected to pay returns of 30% with the standard deviation equal to 40%. Asset A pays on average 10%, has a standard deviation equal to 40% and is NOT correlated with the S&P500. Asset B pays on average 16%, also has a standard deviation equal to 40% and has a correlation of 1 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why. (Beta of asset i (?i) = ?i ?iM / ?M, where ?i, ?M are standard deviations of asset i and market portfolio, ?iM is the correlation between asset i and the market portfolio)
Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to- variability ratio (Sharpe ratio)? O 40 O .50 O .75 O.80
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Risk-free rate, RF 1% The required return for the asset is %. (Round to two decimal places.) C Market return, m 5% Beta, b 0.5
A single mispriced asset has an alpha a = 3.0%, a beta ẞ = 1, and unsystematic risk σ² = 9%. The market risk premium is 5.0% and the market's standard deviation is 0.1. What is the information ratio of the mispriced asset? In constructing an optimal allocation between this mispriced asset and the market portfolio, what proportion of your investment would you place in the mispriced asset? Oa. 0.1; 6.67% O b. 0.33; 6.67% O c. 0.33; 6.90% O d. 0.1; 66.67% O e. 0.1; 6.90%
Answer question in the image.
Use the basic equation for the CAPM to rework each of the following problems for above case. Case A) Find the required return for an asset with a beta of 0.9 when the risk-free rate and market return are 8% and 12% respectively. Case B) Find the risk-free rate for a firm with a required return of 15% and a beta of 1.25 when the market return is 14%. Case C) Find the market return for an asset with a required return of 16% and a beta of 1.1 when the risk-free rate is 9%. Case D) Find the beta for an asset with a required return of 15% when the risk-free rate and market return are 10% and 12.5% respectively.
= 10. Recall that the risk-neutral probability of an asset corresponds to the probability for which the expected return on the asset equals the risk-free rate. Consider a special case where the current asset value is So 100, and the annual risk-free rate is r = = 0%. The asset does not pay dividends. Additionally, consider a simple distribution in which the asset price goes up by $10 with probability p and drops by $10 with probability 1 - p. Based on this information, what is the risk-neutral probability? It (a) 0.55 (b) 0.50 (c) 0.45 (d) 1.00
Nikul
An asset has normally-distributed returns, with mean of 10.6% and standard deviation of 14.8%. What is the 2% VaR (value at risk) return? Enter answer in percents.
If the beta of Asset A is 2.2, the risk free rate is 2.5%, and the expected return on Asset A is 8%, what is the expected return on the market (Note: you want to use CAPM)? Group of answer choices 7.28% 5.00% 8.00% 16.80%

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