Answer is complete but not entirely correct. Variance Security A 1,521 Security B Security C 1,609 2,440 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.) Answer is complete but not entirely correct. Mean Variance Security A 15% 1,521 Security B 17% 1,609 Security C 19% 2,440 Assume that security returns are generated by the single-index model, Ri a BiRM + ei where R₁ is the excess return for security /and Ry 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 Bi E(Ri} #{@į) A 1.5 61 298 B 1.7 8 15 C 1.9 10 24 a. If oy 26%, calculate the variance of returns of securities A, B, and C. Answer is complete but not entirely correct. Variance Security A 1,521 Security B 1,609 Security C 2,440 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.) < Prev 3 of 20 Next >

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.60% + 0.90RM + eA RB = -2.00% + 1.20RM + eB OM = 26%; R-squarea = 0.21; R-squareg = 0.12 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B.

Read the box “The ‘Beta’ of a Stock” in the attachment.a. Suppose that the value of β is greater than 1 for a particular stock.Show that the variance of (R - Rf) for this stock is greater than thevariance of (Rm - Rt).b. Suppose that the value of β is less than 1 for a particular stock. Is itpossible that variance of (R - Rf) for this stock is greater than thevariance of (Rm - Rt)? (Hint: Don’t forget the regression error.) c. In a given year, the rate of return on 3-month Treasury bills is 2.0%and the rate of return on a large diversified portfolio of stocks (theS&P 500) is 5.3%. For each company listed in the table in the box,use the estimated value of β to estimate the stock’s expected rate ofreturn.

A coefficient of determination of 0.6 means that \\( 40 \\% \\) of the variation in a security's return is related to factors other than the security's relationship to the market. True False

(Singular) Suppose there are two stocks that are uncorrelated. Each of these has variance of 1, and there are expected returns are 7₁ and 72, respectively. The risk-free rate is rf. Find the portfolio of weights w₁ and w2 for the Markowitz (market) portfolio. Show that for some value of rf there is no Markowitz portfolio.

Consider the expected return and standard deviation of the following two assets:   Asset 1:  E[r1]=0.1  and  σ1=0.2    Asset 2: E[r2]=0.3  and  σ2=0.4     (a) Draw (e.g. with Excel) the set of achievable portfolios in mean-standard deviation space for the cases: (i) ρ12= -1, (ii) ρ12=0.   (b) Suppose ρ12=-1. Which portfolio has the minimal variance? What is the variance and expected return of that portfolio?     (c) Derive the formula for the variance of a portfolio with four assets.

If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %

The following expected return and the standard deviation of current returns are known:   Security (i) Expected Return Standard Deviation βi A 0.20 0.12 1.1 B 0.12 0.10 0.8 T-Bills 0.05 0 0 Market Portfolio 0.20 0.15 1 Required: Determine which of A or B is over-valued or undervalued.

Consider the following single factor specification: R₁ = a¡ + ßi, Rµ + €i. Where R; is the return on security i, RM is the return on index M (a broad market index) and e, is a zero- mean white noise random variable not correlated with anything. Assume that the single factor specification above correctly describes the return generating processes of all securities. Furthermore, you have the following descriptive statistics for returns of well-diversified Portfolios X, Y, and index M. Portfolio X Portfolio Y Index M Risk-Free Expected return 14% 17% ?? ?? B₁ 1.2 1.6 1 0 a. Assume that the corresponding single factor APT correctly prices Portfolios X and Y. In other words, the expected returns of Portfolios X and Y shown above - 14% and 17% respectively - are equal to their APT-predicted expected returns. Calculate the expected return of Index M and risk-free rate. b. Another well-diversified portfolio Z has a beta, ßz, of 0.8 while its expected return is 10%. Form a portfolio consisting…

The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk.   Multiple Choice   lower; lower   lower; higher   higher; lower   higher; higher