INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 24, Problem 5CP
Summary Introduction
To calculate: Sharpe performance measure of portfolio Q as per the given information.
Introduction: Sharpe ratio is defined as premium of the risk of portfolio with respect to the total risk of the portfolio. This ratio is also called reward to volatility ratio.
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(Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in Houston,
Texas. The firm is evaluating the stock of four different firms for possible inclusion in its fund holdings. As part of
their analysis, Sante's managers have asked their junior analyst to estimate the investor-required rate of return on
each firm's shares using the CAPM and the following estimates: The rate of interest on short-term U.S. Treasury
securities is currently 3.5 percent, and the expected return for the market portfolio is 9.5 percent. What should be the
expected rates of return for each investment?
Security
ABCO
D
Beta
1.57
0.76
1.35
0.89
a. The expected rate of return for security A, which has a beta of 1.57, is %. (Round to two decimal places.)
(Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in Houston,
Texas. The firm is evaluating the stock of four different firms for possible inclusion in its fund holdings. As part of
their analysis, Sante's managers have asked their junior analyst to estimate the investor-required rate of return on
each firm's shares using the CAPM and the following estimates: The rate of interest on short-term U.S. Treasury
securities is currently 2.5 percent, and the expected return for the market portfolio is 10 percent. What should be
the expected rates of return for each investment?
Security
A
B
Beta
1.72
0.77
a. The expected rate of return for security A, which has a beta of 1.72, is %. (Round to two decimal places.)
(Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in Houston, Texas. The firm is evaluating the stock of four different firms for possible inclusion in its fund holdings. As part of their analysis, Sante's managers have asked their junior analyst to estimate the investor-required rate of return on each firm's shares using the CAPM and the following estimates: The rate of interest on short-term U.S. Treasury securities is currently
4
percent, and the expected return for the market portfolio is
10
percent. What should be the expected rates of return for each investment?
Security
Beta
A
1.67
B
0.58
C
1.14
D
0.78
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Part 1
a. The expected rate of return for security A, which has a beta of
1.67,
is
enter your response here%.
(Round to two decimal places.)
Part 2
b. The expected…
Chapter 24 Solutions
INVESTMENTS-CONNECT PLUS ACCESS
Ch. 24 - Prob. 1PSCh. 24 - Prob. 2PSCh. 24 - Prob. 3PSCh. 24 - Prob. 4PSCh. 24 - Prob. 5PSCh. 24 - Prob. 6PSCh. 24 - Prob. 7PSCh. 24 - Prob. 8PSCh. 24 - Prob. 9PSCh. 24 - Prob. 10PS
Ch. 24 - Prob. 11PSCh. 24 - Prob. 12PSCh. 24 - Prob. 13PSCh. 24 - Prob. 14PSCh. 24 - Prob. 15PSCh. 24 - Prob. 16PSCh. 24 - Prob. 17PSCh. 24 - Prob. 18PSCh. 24 - Prob. 19PSCh. 24 - Prob. 20PSCh. 24 - Prob. 21PSCh. 24 - Prob. 22PSCh. 24 - Prob. 1CPCh. 24 - Prob. 2CPCh. 24 - Prob. 3CPCh. 24 - Prob. 4CPCh. 24 - Prob. 5CPCh. 24 - Prob. 6CPCh. 24 - Prob. 7CPCh. 24 - Prob. 8CPCh. 24 - Prob. 9CPCh. 24 - Prob. 10CPCh. 24 - Prob. 11CPCh. 24 - Prob. 12CPCh. 24 - Prob. 13CPCh. 24 - Prob. 14CP
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