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Suppose that the average excess return on stocks is 12.00% and that the risk-free interest rate...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply.Investors assume that their investment activities won't affect the price of a stock.There are no taxes.Assets won't be short sold.Asset quantities aren't given.Consider the equation for the Capital Asset Pricing Model (CAPM):$$ \hat{r}_{1}=r_{R F}+\left(\hat{r}_{M}-r_{R F}\right) \times \frac{\operatorname{Cov}\left(r_{i}, r_{M}\right)}{\sigma_{M}^{2}} $$In this equation, the term \(r_{R F}\) represents therate of return on a risk-free bondSuppose that the market's average excess return on stocks is 6.00 %...
Suppose that the CAPM is a good model of risk in the stock market. Suppose also...
Suppose that the CAPM is a good model of risk in the stock market. Suppose also that the average excess return on stocks is 10 percent and that the risk-free interest rate is 1 percent. What would you expect to be the return to stocks with each of the following beta coefficients? a 20.5 b 0.3 c 1.0 d 2.0
Question 7 (1 point) According to the CAPM, if the risk-free rate is constant and the...
Question 7 (1 point) According to the CAPM, if the risk-free rate is constant and the market risk premium (RmRr) creases byl centage point O a. Then the required return on all stocks will rise by 1 percentage point. O b. Then the required return will increase by 1percentage point for a stock that has a beta of 1.0 c. Then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. O Asset quantities are given and fixed. There are no transaction costs. Taxes are accounted for. All investors focus on a single holding period. O Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(ri, rm) ři = rre + Cím – PRF) x In this equation, the term Cov(ri, rm) / om represents the Suppose that the market's average excess return...
Assume that CAPM holds, i.e. ri = ro+ B;(PM-ro) where Bi portfolio of stocks X, Y, and the risk-free asset. The beta of...
Assume that CAPM holds, i.e. ri = ro+ B;(PM-ro) where Bi portfolio of stocks X, Y, and the risk-free asset. The beta of the portfolio is Bp a beta of 1.5 and Y has a beta of 2.0. Expected return of Y is 10% more than the expected return of X. Risk-free rate is 5%. What is the expected return of this portfolio? iM Your goal is to create a 0.7. X has
3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of...
3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. Expected returns are based on individual investor risk sensitivity. Investors have homogeneous expectations. There are no taxes. All investors focus on a single holding period. Consider the equation for the Capital Asset Pricing Model (CAPM): = TRF + OM-TRF) x Cover o In this equation, the term (OM-TRF) represents the Suppose that the market's...
Problem 8-13 CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. T...
Problem 8-13 CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 8.30 % 16 % 0.7 B 9.90 16 1.1 C 12.30 16 1.7 Fund P has one-third of its funds invested in each of the three stocks....
Consider the following information: Beta Portfolio Risk- free Market Expected Return 6 % 11.4 9.4 20...
Consider the following information: Beta Portfolio Risk- free Market Expected Return 6 % 11.4 9.4 20 a. Calculate the expected return of portfolio A with a beta of 20. (Round your answer to 2 decimal places.) Expected return b. What is the alpha of portfolio A (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Alpha c. If the simple CAPM is valid state whether the above situation is possible? Yes No 5....
CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B...
CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Standard Deviation 14% 14 14 Beta 0.9 1.3 1.7 Expected Return 9.60 % 11.42 13.24 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and...
Suppose that the expected return of a stock is 12%, the risk-free rate is 1%, the...
Suppose that the expected return of a stock is 12%, the risk-free rate is 1%, the expected return of the market portfolio is 7%, and the beta of the stock with respect to the market portfolio is 1.0. What is the difference between the expected return of the stock and expected return that results from the CAPM for such stock (i.e. expected return - expected return from CAPM)? 3.80% 4.40% 5.00% 5.60%
Question 7 (1 point) According to the CAPM, if the risk-free rate is constant and the market risk premium (RmRr) creases byl centage point O a. Then the required return on all stocks will rise by 1 percentage point. O b. Then the required return will increase by 1percentage point for a stock that has a beta of 1.0 c. Then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. O Asset quantities are given and fixed. There are no transaction costs. Taxes are accounted for. All investors focus on a single holding period. O Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(ri, rm) ři = rre + Cím – PRF) x In this equation, the term Cov(ri, rm) / om represents the Suppose that the market's average excess return...
Assume that CAPM holds, i.e. ri = ro+ B;(PM-ro) where Bi portfolio of stocks X, Y, and the risk-free asset. The beta of the portfolio is Bp a beta of 1.5 and Y has a beta of 2.0. Expected return of Y is 10% more than the expected return of X. Risk-free rate is 5%. What is the expected return of this portfolio? iM Your goal is to create a 0.7. X has
3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. Expected returns are based on individual investor risk sensitivity. Investors have homogeneous expectations. There are no taxes. All investors focus on a single holding period. Consider the equation for the Capital Asset Pricing Model (CAPM): = TRF + OM-TRF) x Cover o In this equation, the term (OM-TRF) represents the Suppose that the market's...
Consider the following information: Beta Portfolio Risk- free Market Expected Return 6 % 11.4 9.4 20 a. Calculate the expected return of portfolio A with a beta of 20. (Round your answer to 2 decimal places.) Expected return b. What is the alpha of portfolio A (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Alpha c. If the simple CAPM is valid state whether the above situation is possible? Yes No 5....
CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Standard Deviation 14% 14 14 Beta 0.9 1.3 1.7 Expected Return 9.60 % 11.42 13.24 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and...
Suppose that the expected return of a stock is 12%, the risk-free rate is 1%, the expected return of the market portfolio is 7%, and the beta of the stock with respect to the market portfolio is 1.0. What is the difference between the expected return of the stock and expected return that results from the CAPM for such stock (i.e. expected return - expected return from CAPM)? 3.80% 4.40% 5.00% 5.60%
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