You live in an economy with the risk-free rate of 2% p.a. and the expected return...

Question

Question

You live in an economy with the risk-free rate of 2% p.a. and the expected return...

You live in an economy with the risk-free rate of 2% p.a. and the expected return on the market portfolio equal to 10% p.a. and volatility of 20% p.a. You are approached by a client whose target risk is 10% p.a. What is the expected return on the portfolio meeting that risk target?

a) 2%

b) .06

c) .10

d) 8%

business finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

Expected Return is given by =

NOTE : - This formula is another version of CAPM. In CAPM we use beta, here we are using instead of Beta.

Expected Return is =

= 6% OR 0.06

Option B is correct.

Add a comment

Answer 2

Similar Homework Help Questions

You live in an economy with the risk-free rate of 2% p.a. and the expected return...

You live in an economy with the risk-free rate of 2% p.a. and the expected return on the market portfolio equal to 10% p.a. and volatility of 20% p.a. You are approached by a client whose target expected return equals 8% p.a. What is the weight of the market in the portfolio meeting that return target? Select one: a. 0.50 b. 0.75 c. 0.25 d. 0.10
The risk-free rate is 0%. The market portfolio has an expected return of 20% and a volatility of 20%. You have $100 to invest. You decide to build a portfolio P which invests in both the risk-free investment and the market portfolio.

The risk-free rate is 0%. The market portfolio has an expected return of 20% and a volatility of 20%. You have $100 to invest. You decide to build a portfolio P which invests in both the risk-free investment and the market portfolio.a. How much should you invest in the market portfolio and the risk-free investment if you want portfolio P to have an expected return of 40%?b. How much should you invest in the market portfolio and the risk-free investment...
The risk-free market asset is currently trading at 1.8%, the expected rate of return on the...

The risk-free market asset is currently trading at 1.8%, the expected rate of return on the market is 6%. If you held a portfolio of two equal-weighted assets, A and B, whose Corr(A,B) = –1, then what must be the rate of return on this portfolio?

Given that the risk-free rate is 5%, the expected return on the market portfolio is 20%,...

Given that the risk-free rate is 5%, the expected return on the market portfolio is 20%, and the standard deviation of returns to the market portfolio is 20%, answer the following questions: c. Now suppose that you want to have a portfolio, which pays 25% expected return. What is the weight in the risk free asset and in the market portfolio? d. What do these weights mean: What are you doing with the risk free asset and what are you...
The risk-free rate is 5%. A risky portfolio has an expected return of 10% and a...

The risk-free rate is 5%. A risky portfolio has an expected return of 10% and a standard deviation of return of 20%. If you want to form a complete portfolio from these two assets, and you want this portfolio to have an expected return greater than 5% but less than 10% what must you do? Assume that all borrowing and lending can be done at the risk-free rate. a. Lend at the risk free rate b. borrow at the risk...
3. The risk-free rate is 0% and the expected return on the market is 10%. You...

3. The risk-free rate is 0% and the expected return on the market is 10%. You are given the same stocks as in Q 2. Assuming, as in Q 2(b), that you hold the stock as part of a well-diversified portfolio, which stocks would you buy if the expected return on the stocks were as below: Stock Expected return in % Stock o (in %) 20 B 0.5 D 5 2

You wish to invest in a portfolio of stocks A and B. The risk free rate...

You wish to invest in a portfolio of stocks A and B. The risk free rate is 4%. A B Expected return (%) 10 20 Volatility (%) 15 22 Correlation between returns 0.3 Complete the following table for each portfolio Which portfolio has the highest reward to risk (with risk measured as volatility)? Portfolio % in A Expected Return Standard Deviation of Return Sharpe Ratio 1 30% 2 40% 3 50%
You observe that a firm has a beta of 1.25, the expected return on the market portfolio is 10%, and the risk-free rate o...

You observe that a firm has a beta of 1.25, the expected return on the market portfolio is 10%, and the risk-free rate of return is equal to 3%. What is the estimated cost of new common equity raised internally by reinvesting earnings?
Problem 18-13 The risk-free rate of return is 6.5%, the expected rate of return on the...

Problem 18-13 The risk-free rate of return is 6.5%, the expected rate of return on the market portfolio is 18%, and the stock of Xyrong Corporation has a beta coefficient of 2.8. Xyrong pays out 30% of its earnings in dividends, and the latest earnings announced were $9.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 20% per year on all reinvested earnings forever. a. What...

Consider a one factor economy where the risk free rate is 5%, and portfolios A and...

Consider a one factor economy where the risk free rate is 5%, and portfolios A and B are well diversified portfolios. Portfolio A has a beta of 0.6 and an expected return of 8%, while Portfolio B has a beta of 0.8 and an expected return of 10%. Is there an arbitrage opportunity in this economy? If yes, how could you exploit it?

You live in an economy with the risk-free rate of 2% p.a. and the expected return...

Homework Answers

Add Answer to:
You live in an economy with the risk-free rate of 2% p.a. and the expected return...

Post as a guest

Earn Coins