Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following. The risk-free rate of return, rf The required returns for investments A and B
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Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following.
- The risk-free
rate of return , rf - The required
returns for investments A and B
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- Given a real rate of interest of 3.4%, an expected inflation premium of 3.6%, and risk premiums for investments A and B of 4.7% and 6.8% respectively, find the following: a. The risk-free rate of return, rf b. The required returns for investments A and B a. The risk-free rate of return is %. (Round to one decimal place.)Supposing the return from an investment has the following probability distribution Return Probability R (%) 8 0.2 10 0.2 12 0.5 14 0.1 Required: What is the expected return of the investment? What is the risk as measured by the standard deviation of expected returns?Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following. The risk-free rate of return, rf
- The expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returns4. Given a real rate of interest of 3.2%, an expected inflation premium of 5.1%, and risk premiums for investments A and B of 7.4% and 8.9% respectively, find the following: a. The risk-free rate of return, r; b. The required returns for investments A and B Review Only Click the icon to see the Worked Solution. a. The risk-free rate of return is %. (Round to one decimal place.) b. The required return for investment A is %. (Round to one decimal place.) The required return for investment B is %. (Round to one decimal place.)According to the capital-asset pricing model (CAPM), a security's expected return is equal to the risk-free rate plus a premium
- Consider the following information: The possible rate of return for a portfolio for an investment is shown below.Probability Possible rate of return 0.25 0.09 0.25 0.11 0.25 0.13 0.25 0.16What is the expected rate of return for the investment?An investor wants to determine the safest way to structure a portfolio from several investments, whose annual returns under different scenarios are as follows: Returns Scenario A B. D Probability 1. 0.11 -0.09 0.10 0.07 0.10 -0.11 0.12 0.14 0.06 0.10 3 0.09 0.15 0.11 0.08 0.10 4 0.25 0.18 0.33 0.07 0.30 0.18 0.16 0.1 0.06 0.40 9. Suppose the investor ignores the scenarios have different probabilities. If he has determined his risk aversion value is 0.75, what percentage of his portfolio should be invested in A? percent 2.What is the Capital Asset Pricing Model (CAPM)? Derive the risk premium when beta is between 0 and 1. Interpret your result.
- The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the risk-free rate plus a risk premium for: a. Volatility b. Systematic risk c. Non-systematic risk d. Diversification e. Marginal utility of consumption1. The return over the risk free rate of 3.4% A. Real return B. Average return C. Risk premium D. Required return E. Inflation premiumDarren is considering the following investments; Alphabet, PayZero and FNQ Res.: Probability of return (%) Likely Return Alphabet (%) Likely Return PayZero (%) Likely Return FNQ Res. (%) 20 6 4 9 30 9 7 14 40 16 10 19 10 18 14 26 a) Calculate the expected return for each asset.b) Calculate the expected return on a portfolio comprising each asset weighted as follows Asset Weighting (%) Weighting (%) Alphabet 20 PayZero 55 FNQ Res. 25 c) Explain to Darren the benefit of combining the assets into a portfolio instead of undertaking individual investments in Alphabet, PayZero and FNQ Res. d) Calculate the risk attached to each of the investments proposed in Alphabet, PayZero and FNQ Res. Rank each investment in regard to its risk and return. Discuss the likely range of returns that could eventuate for each asset with a 95% level of accuracy. ONLY ANSWER PART C AND D PLEASE