Adequate information: Expected return on portfolio [E(R P )] = 9% or 0.09 Standard deviation of the portfolio (σ P ) = 16% or 0.16 Risk-free rate (R f ) = 4.1% or 0.041 Market expected return [E(R M )] = 11% or 0.11 Security correlation with the market (ρ L , M ) = 0.38 Standard deviation of the security (σ 1 ) = 60% or 0.60 To compute: Expected rate of return on a security. Introduction: Expected return on security refers to the yield or return that is anticipated on the security in the future.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11, Problem 31QAP

Summary Introduction

Adequate information:

Expected return on portfolio [E(R_P)] = 9% or 0.09

Standard deviation of the portfolio (σ_P) = 16% or 0.16

Risk-free rate (R_f) = 4.1% or 0.041

Market expected return [E(R_M)] = 11% or 0.11

Security correlation with the market (ρ_L_,_M) = 0.38

Standard deviation of the security (σ₁) = 60% or 0.60

To compute: Expected rate of return on a security.

Introduction: Expected return on security refers to the yield or return that is anticipated on the security in the future.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

After many sunset viewings at SUNY Brockport, Amanda dreams of owning a waterfront home on Lake Ontario. She finds her perfect house listed at $425,000. Leveraging the negotiation skills she developed at school, she persuades the seller to drop the price to $405,000. What would be her annual payment if she opts for a 30-year mortgage from Five Star Bank with an interest rate of 14.95% and no down payment? a- $25,938 b- $26,196 c- $24,500 d- $27,000

Imagine that the SUNY Brockport Student Government Association (SGA) is considering investing in sustainable campus improvements. These improvements include installing solar panels, updating campus lighting to energy-efficient LEDs, and implementing a rainwater collection system for irrigation. The total initial investment required for these projects is $100,000. The projects are expected to generate savings (effectively, the cash inflows in this scenario) of $30,000 in the first year, $40,000 in the second year, $50,000 in the third year, and $60,000 in the fourth year due to reduced energy and maintenance costs. SUNY Brockport’s discount rate is 8%. What is the NPV of the sustainable campus improvements? (rounded) a- $70,213b- $48,729c- $45,865d- $62,040

Imagine that the SUNY Brockport Student Government Association (SGA) is considering investing in sustainable campus improvements. These improvements include installing solar panels, updating campus lighting to energy-efficient LEDs, and implementing a rainwater collection system for irrigation. The total initial investment required for these projects is $100,000. The projects are expected to generate savings (effectively, the cash inflows in this scenario) of $30,000 in the first year, $40,000 in the second year, $50,000 in the third year, and $60,000 in the fourth year due to reduced energy and maintenance costs. SUNY Brockport’s discount rate is 8%. What is the NPV of the sustainable campus improvements? (rounded)a- $70,213b- $48,729c- $45,865d- $62,040