The information about asset X and Y are given as follows: Expected Standard Asset Return Deviation 10% 4% Y 15% 11% Correlation = -1 If it is possible to borrow at the risk-free rate, rf, calculate the following: Weight of Stock A: % (Round to two decimals) Weight of Stock B: % (Round to two decimals) Risk free rate: % (Round to two decimals)
Q: c) Assume that using the Security Market Line (SML) the required rate of return (Ra) on stock A is…
A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…
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A: Beta Coefficient of Stock X = Using excel SLOPE function SLOPE(Returns of Stock X, Returns of NYSE)…
Q: Assume that the short-term risk-freerate is 3%, the market index S&P500 is expected to pay returns…
A: In order to compute expected return capital asset pricing model is used. The formula to compute…
Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…
A: “Hey, since there are multiple questions posted, we will answer first question. If you want any…
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A: Coefficient of Variation =Standard Deviation/ Expected Return
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A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: c) Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…
A: The question is based on the concept Capital asset pricing model (CAPM) and beta of a stock, the…
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A: Hi There, Thanks for posting the question. As per Q&A guidelines, the solution for first three…
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A: Beta = 1.35 Expected Return = 16% Return Risk-free asset = 4.8% Part a: Weight of asset = 50%…
Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…
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Q: Suppose the returns on an asset are normally distributed. The historical average annual return for…
A: Here, Historical Average Annual Return is 5.7% Standard Deviation is 18.3%
Q: Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns…
A:
Q: Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns…
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Q: Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062…
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Q: Suppose that index model for Stocks A and B is estimated from excess returns with the following…
A: Systematic risk is the portion of the overall risk induced by factors outside the control of a…
Q: Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns…
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A: Solution-Return from portfolio P=16×16.09+8×1.15+20+3.45+5×79.31=257.44+9.2+69+396.55=7%
Q: d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay…
A:
Q: 9. Consider the case of two financial assets and three market conditions (states). The table below…
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A: 4.092% was obtained using the CAPM model. CAPM model refers to the capital asset pricing model.
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- Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.6%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below. Reg A to E Reg F to G2…Assume that security returns are generated by the single-index model, Ri = αi + βiRM + ei where Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security βi E(Ri) σ(ei) A 1.4 14 % 23 % B 1.6 16 14 C 1.8 18 17 a. If σM = 22%, calculate the variance of returns of securities A, B, and C. b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)Which asset in the following table has the most market risk (also known as systematic or non- diversifiable risk)? Asset Return Beta Standard Deviation Asset A 11% 0.95 35% Asset B 13% 1.00 35% Asset C 9% 1.20 30% 1.) Asset C 2.) All three Assets 3.) Asset B 4.) Asset A and Asset B 5.) Asset A
- Assume that security returns are generated by the single-index model,Ri = αi + βiRM + eiwhere Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security βi E(Ri) σ(ei) A 0.7 7 % 20 % B 0.9 9 6 C 1.1 11 15 a. If σM = 16%, calculate the variance of returns of securities A, B, and C. b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)8. Given the following information what must be the risk-free rate of interest (assume the asset is properly priced)? The expected return of the market is 14.25%, the stock's B is.82 and the expected return of the asset is 12.89%. A.5.91% B. 6.69% C. 7.41% D. 8.93%Scenario 2: The following table shows the returns for the market index (Market - M) and the returns for two stocks (Asset X & Y) under three scenarios. Assume each scenario has an equal chance of occurring (33%). Bad Okay Good Market - M-5% 5% 15% Asset - X -2%-3% 25% Asset - Y -4%-6% 30% What is the correlation of "Asset - Y" to "Market M"? enter your number to two decimal places without the percent sign. Example 23% enter as .23.
- Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?Assume that there are two factors that price assets. Risk free rate is 4%. Factor 1 has anexpected return of 8% and factor 2 has an expected return of 10%. Calculate the expectedreturn for each asset with the following sensitivities using the Arbitrage Pricing Theory (APT). (a) β1 = 1.2, β2 = 0.9; (b) β1 = 1.5, β2 = −0.60;Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here O in order to copy the contents of the data table below into a spreadsheet.) ne Risk-free Market rate, R return, rm Beta, b nts 4% 0.7 1% The required return for the asset is %. (Round to two decimal places.) eТext edia Librai ial Calculat er Resource Enter your answer in the answer box and then click Check Answer. Check Answer mic Study ules Clear All All parts showing 10: DExercise(14); ools > This course (Introduction to Finance (FIN-101-D02) Distance Spring 2021) is hased on Zutter/Smart Princinles of Managerial Finance Rrief Re 4/13 O Type here to search insert
- assume that the market consists of two securities. Security A has a market value of $1 billion and a covariance with the market portfolio of 0.15. Security B has a market value of $3 billion and a covariance with the market portfolio of 0.08. What is the standard deviation of the market portfolio?Which asset in the following table has the most market risk (also known as systematic or non- diversifiable risk)? Asset A B Asset B Asset A Return Both Assets A and C Asset C (10% 12% 14% Beta 0.74 1.00 1.25 Standard Deviation 20% 40% 30%Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock (b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 a) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal…