Consider an economy with two types of​ firms, S and I. S firms all move together. I firms move independently. For both types of​ firms, there is a 60% probability that the firm will have a 15% return and a 40% probability that the firm will have a −10% return. What is the volatility​ (standard deviation) of a portfolio that consists of an equal investment​ in: a. 20 firms of type​ S? b. 20 firms of type​ I?

Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 49%. Portfolios A and B are both well diversified.  Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.6 2.4 39 B 2.3 -0.7 9   Required: What is the expected return–beta relationship in this economy?

Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independent firm- specific components with a standard deviation of 46%. Portfolios A and B are both well diversified. Portfolio A Beta on M₁ 1.5 2.0 Beta on My 2.1 -0.6 Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(rp) = Expected Return (%) 36 14 45 60 Answer is not complete. Bp1 Bp2

A manager believes his firm will earn a return of 12.50 percent next year. His firm has a beta of 1.40, the expected return on the market is 10.50 percent, and the risk-free rate is 3.50 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return % Determine whether the manager is saying the firm is undervalued or overvalued. O overvalued O undervalued