Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Exercice 5 ( Answer question 4 to 6)
The expected return on treasury bills E(RF)= 4%
- Calculate the expected return E(.) for the market portfolio, the FGL security and the SDL
- Calculate the variance and standard deviation for the market portfolio, FGL security and SDL
- Calculate the covariance between the market portfolio and the FGL security, and the covariance between the market portfolio and the SDL
- Calculate the correlation coefficient between the market portfolio and the FGL security, and the correlation coefficient between the market portfolio and the SDL security.
- Calculate the beta of FGL stock relative to the market portfolio with two different methods.
- Calculate the beta of the SDL stock relative to the market portfolio with two different
- Calculate the expected return of the Pfl portfolio composed of 70% FGL stock and 30% SDL stock, what is the beta of this portfolio?
- Using
CAPM assess the performance of FGL and SDL securities, Are they overvalued or undervalued? - Which of these two securities would you recommend selling if held, and which would you recommend buying?
Transcribed Image Text:High increase
Steady growth
Low growth
Probability Yield
of
achievement
25%
50%
25%
Market
12%
10%
06%
FGL
18%
16%
12%
SDL
10%
12%
14%
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- Consider the following two assets: Asset Expected return Standard deviation of returns 1 18% 30% 2 8% 10% The returns on the two assets are perfectly negatively correlated (i.e. coefficient of -1). Calculate the proportions of assets 1 and 2 that generate a portfolio with a standard deviation of zero. What is the expected return of that portfolio?arrow_forwarda. Using the data in the table below and calculate the following performance measuresarrow_forward1. The return over the risk free rate of 3.4% A. Real return B. Average return C. Risk premium D. Required return E. Inflation premiumarrow_forward
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