Adequate information: Given situation Portfolio Expected return Standard Deviation A 30% 35% B 40% 25% To determine: whether given situation is possible as per CAPM Introduction: As per CAPM Expected return of the portfolio = Risk free rate + Beta of the Portfolio X Market risk premium Beta of the portfolio represents the sensitivity of its return to the market. It is computed as follows: Beta of the portfolio = (Correlation between the market return and portfolio return X Standard deviation of portfolio) / Standard deviation of market

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Answer 1

Question

Chapter 9, Problem 11PS

Summary Introduction

Adequate information:

Given situation

Portfolio Expected return Standard Deviation

A 30% 35%

B 40% 25%

To determine:

whether given situation is possible as per CAPM

Introduction:

As per CAPM

Expected return of the portfolio = Risk free rate + Beta of the Portfolio X Market risk premium

Beta of the portfolio represents the sensitivity of its return to the market. It is computed as follows:

Beta of the portfolio = (Correlation between the market return and portfolio return X Standard deviation of portfolio) / Standard deviation of market

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Answer 2

Question

Chapter 9, Problem 11PS

Summary Introduction

Adequate information:

Given situation

Portfolio Expected return Standard Deviation

A 30% 35%

B 40% 25%

To determine:

whether given situation is possible as per CAPM

Introduction:

As per CAPM

Expected return of the portfolio = Risk free rate + Beta of the Portfolio X Market risk premium

Beta of the portfolio represents the sensitivity of its return to the market. It is computed as follows:

Beta of the portfolio = (Correlation between the market return and portfolio return X Standard deviation of portfolio) / Standard deviation of market

Expert Solution & Answer

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Answer 3

Question

Chapter 9, Problem 11PS

Summary Introduction

Adequate information:

Given situation

Portfolio Expected return Standard Deviation

A 30% 35%

B 40% 25%

To determine:

whether given situation is possible as per CAPM

Introduction:

As per CAPM

Expected return of the portfolio = Risk free rate + Beta of the Portfolio X Market risk premium

Beta of the portfolio represents the sensitivity of its return to the market. It is computed as follows:

Beta of the portfolio = (Correlation between the market return and portfolio return X Standard deviation of portfolio) / Standard deviation of market

Expert Solution & Answer

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Answer 4

Question

Chapter 9, Problem 11PS

Summary Introduction

Adequate information:

Given situation

Portfolio Expected return Standard Deviation

A 30% 35%

B 40% 25%

To determine:

whether given situation is possible as per CAPM

Introduction:

As per CAPM

Expected return of the portfolio = Risk free rate + Beta of the Portfolio X Market risk premium

Beta of the portfolio represents the sensitivity of its return to the market. It is computed as follows:

Beta of the portfolio = (Correlation between the market return and portfolio return X Standard deviation of portfolio) / Standard deviation of market

Expert Solution & Answer

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Answer 5

Chapter 9, Problem 11PS

Summary Introduction

Adequate information:

Given situation

Portfolio Expected return Standard Deviation

A 30% 35%

B 40% 25%

To determine:

whether given situation is possible as per CAPM

Introduction:

As per CAPM

Expected return of the portfolio = Risk free rate + Beta of the Portfolio X Market risk premium

Beta of the portfolio represents the sensitivity of its return to the market. It is computed as follows:

Beta of the portfolio = (Correlation between the market return and portfolio return X Standard deviation of portfolio) / Standard deviation of market

Answer 6

Chapter 9, Problem 11PS

Summary Introduction

Adequate information:

Given situation

Portfolio Expected return Standard Deviation

A 30% 35%

B 40% 25%

To determine:

whether given situation is possible as per CAPM

Introduction:

As per CAPM

Expected return of the portfolio = Risk free rate + Beta of the Portfolio X Market risk premium

Beta of the portfolio represents the sensitivity of its return to the market. It is computed as follows:

Beta of the portfolio = (Correlation between the market return and portfolio return X Standard deviation of portfolio) / Standard deviation of market

Answer 7

Chapter 9, Problem 11PS

Summary Introduction

Adequate information:

Given situation

Portfolio Expected return Standard Deviation

A 30% 35%

B 40% 25%

To determine:

whether given situation is possible as per CAPM

Introduction:

As per CAPM

Expected return of the portfolio = Risk free rate + Beta of the Portfolio X Market risk premium

Beta of the portfolio represents the sensitivity of its return to the market. It is computed as follows:

Beta of the portfolio = (Correlation between the market return and portfolio return X Standard deviation of portfolio) / Standard deviation of market

Answer 8

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Answer 9

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Answer 10

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Answer 11

Ch. 9 - Prob. 1PS Ch. 9 - Prob. 2PS Ch. 9 - Prob. 3PS Ch. 9 - Prob. 4PS Ch. 9 - Prob. 5PS Ch. 9 - Prob. 6PS Ch. 9 - Prob. 7PS Ch. 9 - Prob. 8PS Ch. 9 - Prob. 9PS Ch. 9 - Prob. 10PS

Solution Summary: The author explains that portfolios with higher beta will always have higher expected return as per CAPM.

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Chapter 9 Solutions

Portfolio	Expected return	Standard Deviation
A	30%	35%
B	40%	25%