The risk-free rate is 7% and the expected rate of return on the market portfolio is 11%. a. Calculate the required rate of return on a security with a beta of 1.92. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. If the security is expected to return 15%, is it overpriced or underpriced? a. Required return b. If the security is expected to return 16%, is it overpriced or underpriced? %

The risk-free rate is 7% and the expected rate of return on the market portfolio is 11%. a. Calculate the required rate of return on a security with a beta of 1.92. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. If the security is expected to return 15%, is it overpriced or underpriced? a. Required return b. If the security is expected to return 16%, is it overpriced or underpriced? %

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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Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180 Repete Co. 1.39 0.153 What is the risk - free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Risk - free rate % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. % Repete Co. %
Suppose you observe the following situation: Security Ruby Pearl Expected Return 14.9% 21.0% Beta 0.70 2.13 A). If these two securities are correctly priced, calculate the risk-free rate. Round your answer to 4 decimal points. B). If these two securities are correctly priced, find the market risk premium (using the findings of Requirement-A). Round your answer to 4 decimal points. C). If the current market data shows that the risk-free rate is 3.52 percent, are these securities fairly priced? Comment on your answer. Round your answers to 4 decimal points. D). Calculate the expected return and beta of an equally weighted portfolio of these two securities. Round your answers to 3 decimal points.
The CAPM states that the expected (required) return on an asset is : E(Ri)=Rf+βi[E(RM)−Rf] where the term in square brackets is the risk-premium earned by the market portfolio. Therefore, the beta of the market portfolio (βM) must be equal to __________ . A) zero B) 0.5 C) 1.0 D) an unknown estimate
a. Calculate the change in retur Security A's change in return w Data table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Security A BC Print Beta 1.63 0.62 -0.24 ---n Done X iod.
Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 16%. a. Calculate the market risk premium. b. Given the previous data, calculate the required return on asset A having a beta of 0.4 and asset B having a beta of 1.8.
The risk-free rate is 3% and the expected rate of return on the market portfolio is 8%. a. Calculate the required rate of return on a security with a beta of 2.16. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. If the security is expected to return 13%, is it overpriced or underpriced?
Consider the following information: Standard Deviation Beta Security C Security K Which security will have a higher expected return? Oa. C O b. K 20% 30% 1.25 0.95 A Oc Both securities will have the same expected return Od. Insufficient information to answer the question
Suppose you observe the following situation: Security Beta Expected Return Peat Company 1.70 13.60 Re - Peat Company 0.85 10.80 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk - free rate?
The risk-free rate is 7% and the expected rate of return on the market portfolio is 12%. a. Calculate the required rate of return on a security with a beta of 1.96. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Required return % b. If the security is expected to return 15%, is it overpriced or underpriced? O Overpriced O Underpriced
Suppose the market premium is 12%, market volatility is 20% and the risk-free rate is 6%. Suppose a security has a beta of 0.8. Using the CAPM, what is its expected return?
1. Consider a Treasury bill with a rate of return of 1% and the following risky securities: Security A: E(r) =0.1; variance = 0.03; Security B: E(r) = 0.015; variance = 0.0225; Security C: E(r) = 0.07; variance = 0.04; Security D: E(r) = 0.25; variance = 0.25.The investor must develop a complete portfolio by combining the risk-free asset with one of the securities mentioned above. The security the investor should choose as part of her complete portfolio to achieve the best CAL would be _________." A B C D 2. Security with normally distributed returns has an annual expected return of 10% and a standard deviation of 6%. The probability of getting a return between -1.76% and 21.76% in any one year is NOTE: All answers should be express in strictly numerical terms. For example, if the answer is 5%, write 0.05
Mf1. Question: 1 (Assume that two securities, A and B, constitute the market portfolio, their proportions and variances are 0.39, 160, and 0.61, 340, respectively. The covariance of the two securities is 190. Estimate the systematic risk (beta) of the two securities. Note that the covariance of security-/ with the market portfolio is simply the weighted average of the covariances of security-i with all the securities included in the market portfolio.

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