You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.20 0.65 0.15 Return on P -20% 18% 32% The risk-free rate is currently 5%, and the market portfolio M has an expected return of 15% and standard deviation of 25%, and its correlation with P is .5. What is the portfolio P’s beta?
You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.20 0.65 0.15 Return on P -20% 18% 32% The risk-free rate is currently 5%, and the market portfolio M has an expected return of 15% and standard deviation of 25%, and its correlation with P is .5. What is the portfolio P’s beta?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 3Q: Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation...
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Question
You are considering an investment in a portfolio P with the following expected returns in three different states of nature:
|
Recession |
Steady |
Expansion |
Probability |
0.20 |
0.65 |
0.15 |
Return on P |
-20% |
18% |
32% |
The risk-free rate is currently 5%, and the market portfolio M has an expected return of 15% and standard deviation of 25%, and its correlation with P is .5.
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- What is the portfolio P’s beta?
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