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a) Fill in the empty boxes of the following Expected return E(r) Variance (0²) Standard Deviation (a) Covariance (OM, A) Correlation coefficient (PM b) Find Beta of market and Beta of asset A c) Is combination of both assets attractive

a) Fill in the empty boxes of the following Expected return E(r) Variance (0²) Standard Deviation (a) Covariance (OM, A) Correlation coefficient (PM b) Find Beta of market and Beta of asset A c) Is combination of both assets attractive

Essentials Of Investments
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
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A stock market analyst is considering building a portfolio of two assets (IPSA and CMPC). For this, the analyst uses "Clapes UC Study" where probability of a recession scenario for Chile in 2023 is estimated at 56%. The table below shows estimated returns of both assets for 2023 according to scenarios presented. Also assume an annual risk-free rate of RF = 5.5%. Scenario No Recession Recession Market Return (%) 15% -6% a) Fill in the empty boxes of the following table: Expected return E(r) Variance (0²) Standard Deviation (o) Covariance (0 M, A) Correlation coefficient (PM, A) Asset A Return % 23% 9% Asset A Market b) Find Beta of market and Beta of asset A. c) Is combination of both assets attractive to build a portfolio. Explain d) Assuming that CAPM model is valid, what would be required return of the risky asset A? e) What would be expected return and variance of a portfolio with 40% invested in risky asset A and other 60% invested in risk-free asset? Assumed CAPM model
Transcribed Image Text:A stock market analyst is considering building a portfolio of two assets (IPSA and CMPC). For this, the analyst uses "Clapes UC Study" where probability of a recession scenario for Chile in 2023 is estimated at 56%. The table below shows estimated returns of both assets for 2023 according to scenarios presented. Also assume an annual risk-free rate of RF = 5.5%. Scenario No Recession Recession Market Return (%) 15% -6% a) Fill in the empty boxes of the following table: Expected return E(r) Variance (0²) Standard Deviation (o) Covariance (0 M, A) Correlation coefficient (PM, A) Asset A Return % 23% 9% Asset A Market b) Find Beta of market and Beta of asset A. c) Is combination of both assets attractive to build a portfolio. Explain d) Assuming that CAPM model is valid, what would be required return of the risky asset A? e) What would be expected return and variance of a portfolio with 40% invested in risky asset A and other 60% invested in risk-free asset? Assumed CAPM model
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Why portfolio isn't attractive? Please explain on answer c) 

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