Question

10, 11, 12, and 13

Question 10, 11 and 12 Consider the following year-end prices of a hypothetical market index: Year Price 2004 100 2005 110 2006 104.5 2007 106.59 2008 106.59 2009 110.85 2010 108.63 ECO 362 Summer 2017 10. Compute the expected (annual return of the market index as the arithrnetic average of the annual returns of the market index (a) 0.15 (b) 0.0525 (c) 0.025 (d) 0.015 11. Assume that the rate of return of risk-free bond equals 0.75% and use the above market index as the Market Portfolio. Assuming that the CAPM holds, what is the expected return of asset A whose beta equals 0.8 (a) 0.1 (b) 0.05 (c) 0.026 (d) 0.0135 12, what, according to the CAPM, is the beta of an asset C whose expected return equals 0.75% (that is, the risk-free rate in this problem)? (a) 0 b) 0.8 13. Consider a Market Portfolio with 12% expected return and 20% return standard deviation. If the Sharpe ratio of the market portfolio is 0.5, what is the risk-free rate of return? (a) 0.01 (b) 0.02 (c) 0.03 (d) 0.04