The quoted rate of a short-term government security is 2%. A premium of 3% is added to the risk-free rate to reflect the average market return. What is the required rate of return of the portfolio?

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A: Solution:Sharpe ratio refers to the excess return of portfolio over risk free securities by taking…

Q: Capital Asset Pricing Model (CAPM) - Risk Free rate Risk free rate (Rf)* Beta (B)* Market risk…

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A:

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A: E(rA) =    13% E(rB) = 15% s(rA) = 22% s(rB) = 24% rA,B = 0

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A: Yield on Government Security = 4.50% Liquidity Premium = 1%

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Q: Capital Asset Pricing Model (CAPM) - Risk Free rate Risk free rate (Rf)* Beta (B)* 1.10 Market risk…

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.