EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 13, Problem 1PS
Summary Introduction
To compute: Beta and construct a tabulated summary.
Introduction: The model that shows the relation between systematic risk and expected
Expert Solution & Answer
Explanation of Solution
Security market line: SML refers to a line that represents CAPM (capital asset pricing model), which further shows the level of systematic, or market, risks for various securities against the expected return of the market at a stated point of time.
Regression can be applied to excess return to evaluate beta for each portfolio. It has been shown below:
Beta of Stock A: -0.4707
Beta of Stock B: 0.5945
Beta of Stock C: 0.4172
Beta of Stock D: 1.3799
Beta of Stock E: 0.9018
Beta of Stock F: 1.7769
Beta of Stock G: 0.6638
Beta of Stock H: 1.9119
Beta of Stock I: 2.0819
Tabulated summary has been constructed below:
| Stock | Beta |
| A | -0.47072 |
| B | 0.59447 |
| C | 0.41722 |
| D | 1.37988 |
| E | 0.90179 |
| F | 1.77688 |
| G | 0.66377 |
| H | 1.91194 |
| I | 2.08192 |
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Students have asked these similar questions
a. Using the data in the table below alculate the following performance measures.i. Sharpe ratioii. Treynor measureiii. Jensen’s alphaiv. M-squared measurev. T-squared measure, andvi. Appraisal ratio (information ratio)
Fund
Average return
Standard Deviation
Beta coefficient
Unsystematic Risk
A
0.240
0.220
0.800
0.017
B
0.200
0.170
0.900
0.450
C
0.290
0.380
1.200
0.074
D
0.260
0.290
1.100
0.026
E
0.180
0.400
0.900
0.121
F
0.320
0.460
1.100
0.153
G
0.250
0.190
0.700
0.120
Market
0.220
0.180
1.000
0.000
Risk free return
0.050
0.000
b. Out of the performance measures you calculated in part a., which one would you use undereach of the following circumstances:i. You want to select one of the funds as your risky portfolio.ii. You want to select one of the funds to be mixed with the rest of your portfolio,currently composed solely of holdings in the market-index fund.iii. You want to select one of the funds to form an actively managed stock portfolio
This is a three-part question. Answer to part one is 2.4%; please help me solve for parts two and three. Thank you.
1. Please, compute mean returns, variances and covariance among the two assets of the IBEX35 and present the vector of returns and the matrix.
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