The market risk premium (E[Rm]-Rf) is 6%. The risk-free rate (Rf ) is 2%. Asset X has beta equal to 0.8 and expected return equal to 7%. Asset Y has beta equal to 1 and expected return equal to 7.5%. What level of abnormal return can be expected from a 1:1 long-short portfolio of X and Y?   a. 0.7%   b. 0.6%   c. 0.5%   d. 0.4%   e. None of the above

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
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  1. The market risk premium (E[Rm]-Rf) is 6%. The risk-free rate (Rf ) is 2%. Asset X has beta equal to 0.8 and expected return equal to 7%. Asset Y has beta equal to 1 and expected return equal to 7.5%. What level of abnormal return can be expected from a 1:1 long-short portfolio of X and Y?

      a.

    0.7%

      b.

    0.6%

      c.

    0.5%

      d.

    0.4%

      e.

    None of the above

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