The table here shows the no-arbitrage prices of securities A and B that we calculated. (Click on the following icon e in order to copy its contents into a spreadsheet.) Cash Flow in One Year Market Price Today Weak Economy Security Security A Security B Strong Economy $604 $232 $4 $346 $604 $4 a. What are the payoffs of a portfolio of one share of security A and one share of security B? b. What is the market price of this portfolio? What expected return will you earn from holding this portfolio? a. What are the payoffs of a portfolio of one share of security A and one share of security B? (Select the best choice below.) A. Portfolio A+B pays $578 in both cases (i.e., it is risk free). B. Portfolio A +B pays $608 in both cases (i.e., it is risk free). C. Portfolio A +B pays $4 in both cases (i.e., it is risk free). D. Cannot be determined without the discount rate. b. What is the market price of this portfolio? The market price of this portfolio will be $ (Round to the nearest dollar.) What expected return will you earn from holding this portfolio? The expected return is %. (Round to two decimal places.)

The table here shows the no-arbitrage prices of securities A and B that we calculated. (Click on the following icon e in order to copy its contents into a spreadsheet.) Cash Flow in One Year Market Price Today Weak Economy Security Security A Security B Strong Economy $604 $232 $4 $346 $604 $4 a. What are the payoffs of a portfolio of one share of security A and one share of security B? b. What is the market price of this portfolio? What expected return will you earn from holding this portfolio? a. What are the payoffs of a portfolio of one share of security A and one share of security B? (Select the best choice below.) A. Portfolio A+B pays $578 in both cases (i.e., it is risk free). B. Portfolio A +B pays $608 in both cases (i.e., it is risk free). C. Portfolio A +B pays $4 in both cases (i.e., it is risk free). D. Cannot be determined without the discount rate. b. What is the market price of this portfolio? The market price of this portfolio will be $ (Round to the nearest dollar.) What expected return will you earn from holding this portfolio? The expected return is %. (Round to two decimal places.)

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.12: Uneven, Or Irregular, Cash Flows

Problem 3ST

See similar textbooks

Similar questions

Please solve ii
Calculate the profit or loss for the portfolio.
(Capital asset pricing model) Grace Corporation is considering the following investments. The current rate on Treasury bills is 2.5 percent and the expected return for the market is 9 percent. Stock Beta K 1.06 G 1.28 B 0.78 U 0.93 (Click on the icon in order to copy its contents into a spreadsheet.) a. Using the CAPM, what rates of return should Grace require for each individual security? b. How would your evaluation of the expected rates of return for Grace change if the risk-free rate were to rise to 4 percent and the market risk premium were to be only 6 percent? c. Which market risk premium scenario (from part a or b) best fits a recessionary environment? A period of economic expansion? Explain your response. Question content area bottom Part 1 a. The expected rate of return for security K, which has a beta of 1.06, is enter your response here%. (Round to two decimal places.) Part 2 The expected rate…
Please solve iii.
Suppose you observe the following situation on two securities:Security Beta Expected Return Pete Corp. 0.8 0.12 Repete Corp. 1.1 0.16 Assume these two securities are correctly priced. Based on the CAPM, what is the return on the market?
Please answer fast I give you upvote.
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 security returns are generated by the single-index model, Ri = alphai + BetaiRM + ei where Ri is the excess return for security i and RM is the market's excess return. The risk-free rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data. Security Betai E(Ri) sigma(ei) A 1.4 15% 28% B 1.6 17% 14% C 1.8 19% 23% a. If simaM = 24%, calculate the variance of returns of securities A, B, and C (round to whole number). Variance Security A Security B Security C b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C (enter the variance answers as a whole number decimal and the mean as a whole number percentage)? Mean Variance Security A ?% Security B ?% Security C ?%
Assume that security returns are generated by the single-index model, Ri a BiRM + ei where R₁ is the excess return for security /and Ry is the market's excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security Bi E(Ri} #{@į) A 1.5 61 298 B 1.7 8 15 C 1.9 10 24 a. If oy 26%, calculate the variance of returns of securities A, B, and C. Answer is complete but not entirely correct. Variance Security A 1,521 Security B 1,609 Security C 2,440 b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)
The following below are the expected return and betas of the given set of securities. Given that the risk free rate is 7% and the market return is 13%. Security N O P Return 20 21 23 Beta 1.2 1.8 0.82 Calculate the market risk premium, and the expected return of each asset using CAPM.
Show detailed steps to solve the following question. Consider a portfolio comprised of three securities in the following proportions and with the indicated security beta. a.) What is the portfolios beta? b.) Wht is the portfolios expected return?
Consider a portfolio consisting of the below securities with the below characteristics: Security Amount Invested($) Beta Expected Return A 1,5 MIL 1.0 12.0%B 1.0 MIL 1.5 13.5%C 2.0 MIL 0.8 9.0% Required:a) Calculate the portfolio’s Beta. b) Calculate the portfolio’s expected return. c) Discuss the Capital Asset Pricing Model (CAPM) explaining what it is used forand which are its limitations.