B18121516Company Data3 Claythorne International4 Rogers and Rogers Capital5 Wargrave Limited6 Seton, Lombard, and Marston Incorporated78 Market Data9 The Market101112 Required:13Note: Use cells A2 to C10 from the given information to complete this question.1417ARisk-Free RateB18 Claythorne International19 Rogers Rogers CapitalAlpha1.25%0.85%1.71%-0.18%Expected Return9.50%3.32%CExpected ReturnBeta1.10001.55001.8500-0.2000Risk22.71%0.00%Using the information in the tables above, please calculate the expected excess return for this security using asingle-factor model.DEF20 Wargrave Limited21 Seton, Lombard, and Marston Incorporated22232425 Students: The scratchpad area is for you to do any additional work you need to solve this question or can be used to show your work.26 Nothing in this area will be graded, but it will be submitted with your assignment.2728

The capital asset pricing model aids analysts and investors in calculating the expected return on…

Using the information in the tables above, please calculate the expected excess return for this security using a single-factor model. Claythorne International Rogers and Rogers Capital Wargrave Limited Seton, Lombard, and Marston Incorporated Expected Return

Using the information in the tables above, please calculate the expected excess return for this security using a single-factor model. Claythorne International Rogers and Rogers Capital Wargrave Limited Seton, Lombard, and Marston Incorporated Expected Return

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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Question

B18
1
2
15
16
Company Data
3 Claythorne International
4 Rogers and Rogers Capital
5 Wargrave Limited
6 Seton, Lombard, and Marston Incorporated
7
8 Market Data
9 The Market
10
11
12 Required:
13
Note: Use cells A2 to C10 from the given information to complete this question.
14
17
A
Risk-Free Rate
B
18 Claythorne International
19 Rogers Rogers Capital
Alpha
1.25%
0.85%
1.71%
-0.18%
Expected Return
9.50%
3.32%
C
Expected Return
Beta
1.1000
1.5500
1.8500
-0.2000
Risk
22.71%
0.00%
Using the information in the tables above, please calculate the expected excess return for this security using a
single-factor model.
D
E
F
20 Wargrave Limited
21 Seton, Lombard, and Marston Incorporated
22
23
24
25 Students: The scratchpad area is for you to do any additional work you need to solve this question or can be used to show your work.
26 Nothing in this area will be graded, but it will be submitted with your assignment.
27
28

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2. Suppose that you have a riskfree asset and N risky assets for investment. The rate of return on the riskfree asset is r,, while the (Nx1) vector of the rate of return on the N risky assets is r, which is multivariate normal, i.e., r N(u, E). Your utility function for a portfolio that consists of the riskfree asset and the N risky asset is u(r,)=r,-=o, 2 Suppose that the sum of investment proportions on the riskfree and risky assets is one. Answer the following question. A. What is your optimal investment proportion in the risky assets? How is your investment on the riskfree asset affected by different values of 2? B. Suppose that there is only one risky asset i. Show the effects of the Sharpe ratio (4,/0, ) on the investment proportion in the risky asset.
It measures the sensitivity of the return of a security to changes in the return of a common index taken to be a proxy of the market portfolio. A. alpha B. sharpe index C. treynor index D. Beta
Changing the market risk premium A. Changes neither the y-intercept nor the slope of the security market line B. Changes only the y-intercept of the security market line C. Changes only the slope of the security market line D. Changes both the y-intercept and the slope of the security market line
Provide some idea of the effect of the sensitivity of security prices to changes in market interest rates?
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,b, c subparts
Using a graph, explain when a security is overpriced, under-priced or fairly priced according to the Capital Asset Pricing Model.
What is a long term security? Gives two examples.
The Capital Market Line (CML) expresses the risk-return trade-off for a portfolio as follows: E(Rport )=RFR+Oport [(E(Rm)-RFR)/om ] Required: Extend this expression to allow for the evaluation of any individual risky Asset i. Explain the steps in details.

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