esSuppose you observe the following situation:SecurityPete Corp.Repete Co.Beta1.751.44Pete Corp.Repete Co.What is the risk-free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.)Expected Return0.1850.158Risk-free rateAssume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not roundintermediate calculations. Round the final answers to 2 decimal places.)%Expected Return on Market%

In the given case, we have provided the beta and the expected return of each security.So, using the…

Suppose you observe the following situation: Security Pete Corp. Repete Co. Risk-free rate Beta 1.75 1.44 What is the risk-free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Pete Corp. Repete Co. Expected Return 0.185 0.158 % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market

Suppose you observe the following situation: Security Pete Corp. Repete Co. Risk-free rate Beta 1.75 1.44 What is the risk-free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Pete Corp. Repete Co. Expected Return 0.185 0.158 % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180 Repete Co. 1.39 0.153 What is the risk - free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Risk - free rate % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. % Repete Co. %
Suppose you observe the following situation: Security Pete Corporation Repete Company Beta 1.25 .87 Expected Return 1080 .0820 a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return on market using Pete Corporation a. Expected return on market using Repete Company b. Risk-free rate de de % % %
Suppose you observe the following situation on two securities:Security Beta Expected Return Pete Corp. 0.8 0.12 Repete Corp. 1.1 0.16 Assume these two securities are correctly priced. Based on the CAPM, what is the return on the market?
Suppose you observe the following situation: Security Beta Expected Return Peat Company 1.70 13.60 Re - Peat Company 0.85 10.80 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk - free rate?
Consider the following data for two risk factors (1 and 2) and two securities (J and L):λ0 = 0.07 λ1 = 0.04 λ2 = 0.06bJ1 = 0.10 bJ2 = 1.60 bL1 = 1.80 bL2 = 2.45a. Compute the expected returns for both securities. b. Suppose that Security J is currently priced at $50 while the price of Security L is $15.00.Further, it is expected that both securities will pay a dividend of $0.95 during the coming year.What is the expected price of each security one year from now? c. Compute the correlation between stock A and stock B considering the following data.Standard deviation of stock A = 10 percentStandard deviation of stock B = 17 percentCovariance between the two stocks = 90.
Assume that security returns are generated by the single-index model, Ri = alphai + BetaiRM + ei where 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 Betai E(Ri) sigma(ei) A 1.4 15% 28% B 1.6 17% 14% C 1.8 19% 23% a. If simaM = 24%, calculate the variance of returns of securities A, B, and C (round to whole number). Variance Security A Security B Security 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 whole number decimal and the mean as a whole number percentage)? Mean Variance Security A ?% Security B ?% Security C ?%
1. Suppose there are three complex securities and three different states as follows: Security So S₁(1) S₁ (2) S₁ (3) 1.2 3 0 0 1.8 4 2 0 1.2 2 1 1 2 10 4 A B C D (a) Find the arbitrage-free price of asset D. (b) What is the risk-free return compatible with these asset prices?
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.)
You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset: Fill in the missing values in the table. (Leave no cells blank - be certain to enter O wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Security Firm A Firm B Firm C The market portfolio The risk-free asset b-1. Expected Return Expected return 0.118 % 0.132: 0.113 0.12 0.05 Standard Deviation 0.23 0.74 0.23 Correlation* 0.42 0.27 With the market portfolio What is the expected return of Firm A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Beta 0.94 1.49
You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset a. Fill in the missing values in the table. (Leave no cells blank be certain to enter O wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Security Fimm A Fim B Fim C The market portfolio The risk-fres asset Expected retum O Buy O Sell Expected retum Expected Return 0.119 0.131 O Buy ⒸSell 0.112 0.12 0.05 With the market portfolio b-1. What is the expected return of Firm A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) Expected retum Standard Deviation 0.22 b-2. What is your investment recommendation regarding Firm A for someone with a well- diversified portfolio? O Sell O Buy 0.75 0.19 Correlation b-3. What is the expected return of Firm B? (Do not round intermediate calculations and enter your answer as a percent rounded to 2…
Given that the formula for CAPM is Expected return= risk free rate + Beta*(Return on market - risk free rate), Security A has a beta of 1.16 and an expected return of .1137 and Security B has a beta of .92 and expected return of .0984. If these securities are assumed to be correctly priced, what is their risk free rate? Based on CAPM, what is the return on the market?
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.)

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