Adequate information: Standard deviation (σ) for both markets = 10% Expected return on every security in both markets = 10% Beta factor in the first market (ß 1 ) = 1.5 Beta factor in the second market (ß 2 ) = 0.5 The return for each security, i, in the first market = R 1 i = 0.10 + 1.5 F+ ε 1 i The return for each security, j, in the second market = R 2 j = 0.10 + 0.5 F+ ε 2 i To compute: The market that would be preferred by risk-averse to invest. Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

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Answer 1

Question

Chapter 12, Problem 8QAP

a.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

b.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

c.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

d.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The relationship between the correlation where the risk-averse person is indifferent.

Introduction: A risk-averse person is indifferent between the two markets when the risk of both markets is equal.

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Answer 2

Question

Chapter 12, Problem 8QAP

a.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

b.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

c.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

d.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The relationship between the correlation where the risk-averse person is indifferent.

Introduction: A risk-averse person is indifferent between the two markets when the risk of both markets is equal.

Expert Solution & Answer

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Answer 3

Question

Chapter 12, Problem 8QAP

a.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

b.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

c.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

d.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The relationship between the correlation where the risk-averse person is indifferent.

Introduction: A risk-averse person is indifferent between the two markets when the risk of both markets is equal.

Expert Solution & Answer

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See solution

Answer 4

Question

Chapter 12, Problem 8QAP

a.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

b.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

c.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

d.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The relationship between the correlation where the risk-averse person is indifferent.

Introduction: A risk-averse person is indifferent between the two markets when the risk of both markets is equal.

Expert Solution & Answer

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See solution

Answer 5

Chapter 12, Problem 8QAP

a.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

b.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

c.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

d.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The relationship between the correlation where the risk-averse person is indifferent.

Introduction: A risk-averse person is indifferent between the two markets when the risk of both markets is equal.

Answer 6

Chapter 12, Problem 8QAP

a.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

Answer 7

Chapter 12, Problem 8QAP

a.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

Answer 8

b.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

Answer 9

b.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

Answer 10

c.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

Answer 11

c.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The market that would be preferred by risk-averse to invest.

Introduction: Portfolio variance refers to the measurement of the dispersion of returns. Standard deviation refers to the measurement of deviation of actual returns from average returns.

Answer 12

d.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The relationship between the correlation where the risk-averse person is indifferent.

Introduction: A risk-averse person is indifferent between the two markets when the risk of both markets is equal.

Answer 13

d.

Summary Introduction

Adequate information:

Standard deviation (σ) for both markets = 10%

Expected return on every security in both markets = 10%

Beta factor in the first market (ß₁) = 1.5

Beta factor in the second market (ß₂) = 0.5

The return for each security, i, in the first market = R1i=0.10+1.5F+ε1i

The return for each security, j, in the second market = R2j=0.10+0.5F+ε2i

To compute: The relationship between the correlation where the risk-averse person is indifferent.

Introduction: A risk-averse person is indifferent between the two markets when the risk of both markets is equal.

Answer 14

Expert Solution & Answer

Answer 15

Expert Solution & Answer

Answer 16

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Answer 17

Ch. 12 - Prob. 1CQ Ch. 12 - Prob. 2CQ Ch. 12 - Prob. 3CQ Ch. 12 - Prob. 4CQ Ch. 12 - Market Model versus APT What are the differences...Ch. 12 - APT In contrast to the CAPM, the APT does not...Ch. 12 - CAPM versus APT What is the relationship between...Ch. 12 - Prob. 8CQ Ch. 12 - Data Mining What is data mining? Why might it...Ch. 12 - Prob. 10CQ

Solution Summary: The author explains that portfolio variance refers to the measurement of the dispersion of returns and standard deviation.

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Chapter 12 Solutions