Investments, 11th Edition (exclude Access Card)
11th Edition
ISBN: 9781260201543
Author: Zvi Bodie Professor; Alex Kane; Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 21, Problem 47PS
Summary Introduction
To construct: A delta-neutral portfolio comprising positions in calls and puts that will give profit in near future.
Introduction:
Delta-neutral portfolio: This sort of portfolio does not change with a relative change in the value of the underlying asset or security.
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Students have asked these similar questions
Assume the APT equation for portfolios A and B with the following system of equations:
E[rA] = λ0 + (λ1)3 + (λ2)0.2 = 11.0
E[rB] = λ0 + (λ1)2 + (λ2)1 = 13.0
Assume the following:
. The risk free rate is λ0 = Rf = 5
. The expected return on the market portfolio is RM = 10
. Expected returns are consistent with the CAPM.
. (hint: note that λ1 = E[RA] − Rf and λ2 = E[RB] − Rf ).
Answer the following:
(a) What are λ1 and λ2?
(b) What is the CAPM β associated with the pure portfolio associated with factor 1?
(c) What is the CAPM β associated with the pure portfolio associated with factor 2?
If the simple CAPM is valid and all portfolios are priced correctly, which of the
situations below is possible? Consider each situation independently, and assume the
risk-free rate is 5%.
A)
Portfolio
A
Market
B)
A
Market
Portfolio Expected Return
A
Market
Expected Return
D)
15%
15%
Portfolio Expected Return
Portfolio
20%
15%
20%
15%
Expected Return
A
30%
Market 15%
All options are possible.
Option A
Option D
Option B
Option C
1.2
1.0
Beta
1.2
1.0
Beta
12%
20
Beta
2.5
1.0
Beta
If the simple CAPM is valid and all portfolios are priced correctly, which of
the situations below is possible? Consider each situation independently, and
assume the risk - free rate is 5%. A) Portfolio Expected Return Beta A
15 % 1.1 Market 15 % 0.9 B) Portfolio Expected Return Standard Deviation
A 18 % 11 % Market 13 % 19 % C) Portfolio Expected Return Beta A
18 % 1.1 Market 13 % 1.0 D) Portfolio Expected Return Beta A 29.0 % 2.4
Market 15 % 1.0
Chapter 21 Solutions
Investments, 11th Edition (exclude Access Card)
Ch. 21 - Prob. 1PSCh. 21 - Prob. 2PSCh. 21 - Prob. 3PSCh. 21 - Prob. 4PSCh. 21 - Prob. 5PSCh. 21 - Prob. 6PSCh. 21 - Prob. 7PSCh. 21 - Prob. 8PSCh. 21 - Prob. 9PSCh. 21 - Prob. 10PS
Ch. 21 - Prob. 11PSCh. 21 - Prob. 12PSCh. 21 - Prob. 13PSCh. 21 - Prob. 14PSCh. 21 - Prob. 15PSCh. 21 - Prob. 16PSCh. 21 - Prob. 17PSCh. 21 - Prob. 18PSCh. 21 - Prob. 19PSCh. 21 - Prob. 20PSCh. 21 - Prob. 21PSCh. 21 - Prob. 22PSCh. 21 - Prob. 23PSCh. 21 - Prob. 24PSCh. 21 - Prob. 25PSCh. 21 - Prob. 26PSCh. 21 - Prob. 27PSCh. 21 - Prob. 28PSCh. 21 - Prob. 29PSCh. 21 - Prob. 30PSCh. 21 - Prob. 31PSCh. 21 - Prob. 32PSCh. 21 - Prob. 33PSCh. 21 - Prob. 34PSCh. 21 - Prob. 35PSCh. 21 - Prob. 36PSCh. 21 - Prob. 37PSCh. 21 - Prob. 38PSCh. 21 - Prob. 39PSCh. 21 - Prob. 40PSCh. 21 - Prob. 41PSCh. 21 - Prob. 42PSCh. 21 - Prob. 43PSCh. 21 - Prob. 44PSCh. 21 - Prob. 45PSCh. 21 - Prob. 46PSCh. 21 - Prob. 47PSCh. 21 - Prob. 48PSCh. 21 - Prob. 49PSCh. 21 - Prob. 50PSCh. 21 - Prob. 51PSCh. 21 - Prob. 52PSCh. 21 - Prob. 53PSCh. 21 - Prob. 1CPCh. 21 - Prob. 2CPCh. 21 - Prob. 3CPCh. 21 - Prob. 4CPCh. 21 - Prob. 5CP
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