Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year

Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year

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 that the current one-year rate (one- year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1=6%, E(2r1) =7%, E(3r1) =7.5% E(4r1)=7.85% 1 Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. Show your answers in percentage form to 3 decimal places.
The following data are gathered:· The real risk-free rate is 1.05%· Inflation premium is constant at 2.60%· Default risk premium is 3.50%· Maturity risk premium is 2.30%· Liquidity risk premium is 1.50%What is the risk free rate?
Suppose the real risk-free rate of interest is r*=4%�*=4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next two years and 3.90% per year for the next three years. The maturity risk premium is 0.1×(t−1)%0.1×�−1%, where t� is number of years to maturity, a liquidity premium is 0.45%, and the default risk premium for a corporate bond is 1.40%. The average inflation during the first 4 years is2.37% . What is the yield on a 4-year Treasury bond? 4.30% 8.90% 6.75% 7.05% What is the yield on a 4-year BBB-rated bond? 8.90% 7.50% 7.05% 8.45% If the yield on a 5–year Treasury bond is 7.38% and the yield on a 6–year Treasury bond is 7.83%, the expected inflation in 6 years is . (Hint: Do not round intermediate calculations.)
Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 2.00% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered , i.e., if averaging is required, use the geometric average. (Round your final answer to 2 decimal places.)
The following data are gathered for:· The real risk-free rate is 1.25%· Inflation premium is constant at 2.50%· Default risk premium is 5%· Liquidity risk premium is 0.50% What is the quoted rate on a short-term government security?
A security that increases in price from $50 to $100 during year 1 and drops back to $50 during year 2. During year 3, 4, and year 5 the security increases by $30, $20, and $25 respectively. Required: 1. Solve for Holding Period Return (HPR) 2. Solve for Holding Period Yield (HPY) 3. Solve for Arithmetic Mean of Return and Geometric Mean of Return. Do the comparison and assessment specially in the first two years. 4. Present in a table form and show your computation/solutions.
Consider the following variance-covariance matrix for Security A, Security B, and the Market: Variance-Covariance Matrix A B Market A 0.562500 0.091875 0.028125 0.091875 0.122500 0.021000 B Market 0.028125 0.021000 0.022500 For the coming year, the Market Risk Premium is 5.5 percent and the risk-free rate is 2.0 percent. Determine the required return for Security A using both the Capital Market Line and the Security Market Line (CAPM). What is the (absolute) difference between these two required returns? 12.375% O 16.875% 20.625% Ⓒ 7.700% 6.300%
The expected return for the investment is ??? The standard deviation is ??? While the expected return for the risk-free assets, Treasury Bills, is ??? The standard deviation is ???
The data presented below represents the expected returns on a financial asset in different seasons of the year. Season of year Probability Returns Spring 40% 2% Summer 35% 6% Winter 25% 10% What is the expected return on the asset? ii) What is the standard deviation on the asset? What is the covariance of the asset?
2. Security with normally distributed returns has an annual expected return of 10% and a standard deviation of 6%. The probability of getting a return between -1.76% and 21.76% in any one year is
Can you confirm if this answer is correct? Would it be upward sloping?
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (I.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 1%, E(211) = 4.30%, E(31) = 4.80%, E471) = 6.30% Using the unblased expectations theory, calculate the current (longterm) rates for 1-, 2-, 3-, and 4-year-maturity Treasury securities. Plot the resulting yield curve. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Year 1234 Current (Long-term) Rates %

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