1.a. Expected Return of Portfolio =Risk free rate+Beta*(Market
Return-Risk free rate)=6%+2*(11.4%-6%) =16.80%
b. Alpha of Portfolio A =Actual Return -Expected Return
=9.4%-16.80% =-7.4%
c. No. if CAPM was valid this would not happened.
Consider the following information: Beta Portfolio Risk- free Market Expected Return 6 % 11.4 9.4 20...
The expected return on the market portfolio is 20%. The risk-free rate is 12%. The expected return on SDA Corp. common stock is 19%. The beta of SDA Corp. common stock is 1.20. Within the context of the capital asset pricing model, _________. SDA Stock is underpriced SDA stock is fairly priced SDA stock's alpha is 2.6% SDA Corp. stock's alpha is –2.60%
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The risk-free rate is 6% and the expected rate of return on the market portfolio is 13%. a. Calculate the required rate of return on a security with a beta of 1.25. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. If the security is expected to return 16%, is it overpriced or underpriced?
The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected return on SDA Corp. common stock is 16%. The β of SDA Corp. common stock is 1.25. Within the context of the Capital Asset Pricing Model, is the common stock of SDA Corp. overpriced, underpriced or fairly priced?
#4. If the expected return and risk of the market portfolio are respectively 5% and 5% and the riskless rate is 1% use the CAPM to determine if the following stocks are mispriced: Stock Burger King McDonald's Windy City Wieners Expected Return 4% 7.5% 9% Beta 0.6 1.2 1.4 If mispriced, which is (are) underpriced and which is (are) overpriced?
9. Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 7% Interest rates (R) 2 Consumer confidence (C) 5 The return on a particular stock is generated according to the following equation: r = 19% + 0.8I + 0.4R + 0.50C + e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate...
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Consider the following information: Portfolio Expected Return Beta Risk-free 7 % 0 Market 12.2 1.0 A 11.0 1.6 a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.6. (Round your answer to 2 decimal places.) b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
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