a). E(Ri) = Rf + [i *
{E(RM) - Rf]
= 0.08 + [1.25 * (0.14 - 0.08)] = 0.08 + [1.25 * 0.06] = 0.08 + 0.075 = 0.155, or 15.5%
b). E(Ri) = Rf + [i *
{E(RM) - Rf]
0.11 = 0.08 + [0.75 * {E(RM) - 0.08}]
0.11 - 0.08 = [0.75 * {E(RM) - 0.08}]
0.03 / 0.75 = E(RM) - 0.08
0.04 = E(RM) - 0.08
E(RM) = 0.04 + 0.08 = 0.12, or 12%
c). E(Ri) = Rf + [i *
{E(RM) - Rf]
0.14 = 0.10 + [i *
{0.15 - 0.10}]
0.14 - 0.10 = [i *
0.05]
i =
0.04 / 0.05 = 0.8
UUTUN U N HILJU IGSUIS. 8 Expected return and systematic risk [LO 7] The expected return...
A project has a level of systematic risk of 1.25. The expected return on the market portfolio is 12%, and the risk free rate is 5%. If an investment’s internal rate of return is 12%
Mrs Gomez has a portfolio with an expected return of 7%. The portfolio is evenly invested in a stock and a risk-free asset. The market has an expected return of 12% and the risk-free asset has an expected return of 4%. What is the beta of the stock? O a) 0.50 Ob) 0.75 OC) 1.00 O d) 1.25 e) 1.50
12. Decompose the Total Return on the systematic and unsystematic portions of the following asset: Expected Return market = 4% Risk Free - 1% Expected Return asset A-7% Actual Return Market = 2% Beta asset A .89 Actual Return asset A 5 % UNE (RM) = RM-E(R) UNE (RA) = RA-E(R) Systematic Portion of UNE Return = (Ry - ERBA Unsystematic Portion of UNE Return = (RA-E(R)) - (RM-E(R))BA Interpret your results
following expected return and risks: Loans Risk 0.06 2 Expected Returns 0.14 0.08 0.2 0.05 0.03 0.15 In addition, the assets correlate with each other, the correlation coefficients of the returns of the assets are as follow: P12 = P21 = 0.5 P13 = P31 = 0.2 223 = P32 = 0.4. Show that CML is given by Ř= 26+298720, the optimal portfolio of risky assets is a1 = 7, 22 = iş, 23 = 5, the market price of...
A stock has a beta of 1.14 and an expected return of 10.5
percent. A risk free asset currently early 2.4 percent.
a. What is the expected return on a portfolio that is equally
invested in the two assets?
b. If a portfolio of the two assets has a beta of .92, what are
the portfolio weights?
c. If a portfolio of the two assets has an expected return of 9
percent, what is its beta?
d. If a portfolio...
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.08?
8. Calculate the PORTFOLIO Expected Return and standard deviation of a 60/40 Portfolio of Asset A and asset B. ASSET A 60% ASSET B 40% Return in State Return in State R (A) R(B) PORTFOLIO Rport in Sate S R(P)i Deviation R(P)i Pr Portfolio (Deviation Portfolio 2 State S Squared Dev*Pr Pr State P 0.4 0.6 E(R) E(R) Portfolio Portfolio Var Portfolio sd - 9. Compare the Risk-Return of the two stocks ALONE and the joint risk in the portfolio...
Question 8 and 9 Consider the following three assets: Asset A's expected return is 5% and return standard deviation is 25% Asset B's expected return is 8% and return standard deviation is 32%. . Asset C is a risk-free asset with 2% return The correlation between assets A and B is-0.3 8. Constructing a portfolio from assets A and B such that the expected return of the portfolio equals 3%, find the portfolio weights of assets A and B and...
Suppose there are three assets: A, B, and C. Asset A’s expected return and
standard deviation are 1 percent and 1 percent. Asset B has the same expected
return and standard deviation as Asset A. However, the correlation coefficient of
Assets A and B is −0.25. Asset C’s return is independent of the other two assets.
The expected return and standard deviation of Asset C are 0.5 percent and 1
percent.
(a) Find a portfolio of the three assets that...
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