Which one of the following indices would you use as the most appropriate proxy for the market portfolio and as part of the CAPM model: SP500, FTSE100, and the Dow Jones? Carefully justify your answer and provide all related reasons. Further, assuming a risk-free rate of 1%, an expected return of the market portfolio equal to 6% and a beta parameter of 1.5, with a current price of $100, what is the expected price of an underlying portfolio one year from now? More generally, explain the assumptions under the CAPM model, and mention what type of expected return does the model aim to capture.
Which one of the following indices would you use as the most appropriate proxy for the market portfolio and as part of the CAPM model: SP500, FTSE100, and the Dow Jones? Carefully justify your answer and provide all related reasons. Further, assuming a risk-free rate of 1%, an expected return of the market portfolio equal to 6% and a beta parameter of 1.5, with a current price of $100, what is the expected price of an underlying portfolio one year from now? More generally, explain the assumptions under the CAPM model, and mention what type of expected return does the model aim to capture.
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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Which one of the following indices would you use as the most appropriate proxy for the market portfolio and as part of the CAPM model: SP500, FTSE100, and the Dow Jones?
Carefully justify your answer and provide all related reasons. Further, assuming a risk-free rate of 1%, an expected return of the market portfolio equal to 6% and a beta parameter of 1.5, with a current price of $100, what is the expected price of an underlying portfolio one year from now?
More generally, explain the assumptions under the CAPM model, and mention what type of expected return does the model aim to capture.
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