Suppose that there are two independent economic factors F1 and F2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 45%. The following are well-diversified portfolios:
Portfolio |
Beta on F1 |
Beta on F2 |
Expected Return |
A | 1 | 2 | 19% |
B | 2 | 1 | 24% |
What is the expected return-beta relationship in this economy?
Expected return = risk free rate+M1 beta*M1 risk premium+M2 beta*M2 risk premium | |||||||||
19=5+1*M1 risk premium + 2*M2 risk premium | |||||||||
14=1*M1 risk premium + 2*M2 risk premium……(1) | |||||||||
24=5+2*M1 risk premium + 1*M2 risk premium | |||||||||
19=2*M1 risk premium + 1*M2 risk premium……(2) | |||||||||
Solving (1) & (2) simultaneously we get | |||||||||
M1 risk premium=8 | |||||||||
M2 risk premium=3 | |||||||||
Expected return Beta relationship is: | |||||||||
E{r}=5% + Beta M1*8 + Beta M2*3 |
Suppose that there are two independent economic factors F1 and F2. The risk-free rate is 5%,...
Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 5%, and all stocks have independent firm-specific
components with a standard deviation of 44%. Portfolios A
and B are both well-diversified with the following
properties:
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 5%, and all stocks have independent firm- specific components with a standard deviation of 44%. Portfolios A and B are both well-diversified with the following...
Suppose that there are two independent
economic factors, F1 and F2. The risk-free rate is 3%, and all
stocks have independent firm-specific components with a standard
deviation of 52%. Portfolios A and B are both well-diversified with
the following properties: Portfolio Beta on F1 Beta on F2 Expected
Return A 1.4 1.8 30 % B 2.4 –0.18 27 % What is the expected
return-beta relationship in this economy? Calculate the risk-free
rate, rf, and the factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 46%. The following are well-diversified portfolios: Portfolio Beta on F1 Beta on F2 Expected Return A 2.1 2.4 35% B 3.0 –0.24 30% What is the expected return–beta relationship in this economy? (Do not round intermediate calculations. Round your answers to two decimal places. Omit the "%" sign in...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 54%. Portfolios A and B are both well-diversified with the following properties: Portfolio Beta on F1 Beta on F2 Expected Return A 1.6 2.0 32 % B 2.6 –0.20 29 % What is the expected return-beta relationship in this economy? Calculate the risk-free rate, rf, and the factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 3%, and all stocks have independent firm-specific components with a standard deviation of 42%. Portfolios A and B are both well-diversified with the following properties: Portfolio Beta on F1 Beta on F2 Expected Return A 1.8 2.1 32 % B 2.7 –0.21 27 % What is the expected return-beta relationship in this economy? Calculate the risk-free rate, rf, and the factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 53%. Portfolios A and B are both well-diversified with the following properties: Portfolio Beta on F1 Beta on F2 Expected Return A 1.5 1.9 31 % B 2.5 –0.19 28 % What is the expected return-beta relationship in this economy? Calculate the risk-free rate, rf, and the factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 43%. Portfolios A and B are both well-diversified with the following properties: Portfolio Beta on F1 Beta on F2 Expected Return A 1.9 2.2 33 % B 2.8 –0.22 28 % What is the expected return-beta relationship in this economy? Calculate the risk-free rate, rf, and the factor risk premiums, RP1 and...
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 44%. Portfolios A and B are both well diversified. Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.5 1.9 34 B 1.8 -0.6 12 What is the expected return–beta relationship in this economy?
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 6%, and all stocks have independent firm specific components with a standard deviation of 58%. Portfolios A and Bare both well diversified. Beta on M1 Beta on M2 Portfolio Expected Return () 2.4 A 1.7 37 B 2.3 -0.8 10 What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(rP) =...
Suppose there are two independent economic factors, M and M2. The risk-free rate is 5%, and all stocks have independent firm- specific components with a standard deviation of 44% Portfolios A and B are both well diversified Portfolio Beta on My Beta on M2 Expected Return (%) What is the expected return-beta relationship in this economy? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(TP) BP2