Question 2: 10 marks Consider the information given in the Table 2A and complete Table 2B. From the completed Table 2B, use the information to grpahically present the Security Market Line (SML). Compute the slope of this line. Hints: i) ii) When 100% money is invested in asset X (portfolio weight 1), the beta of the portfolio is 0.85 Since the risk-free asset is, well, risk-free, its beta will be zero Table 2A Expected return for asset x (%) 13 Risk free rate (%) 5 Beta of asset X 0.85 Table 2B Proportion of portfolio in Asset X 0.00 0.25 0.50 0.75 1.00 1.25 Expected Portfolio portfolio beta return 2
Question 2: 10 marks Consider the information given in the Table 2A and complete Table 2B. From the completed Table 2B, use the information to grpahically present the Security Market Line (SML). Compute the slope of this line. Hints: i) ii) When 100% money is invested in asset X (portfolio weight 1), the beta of the portfolio is 0.85 Since the risk-free asset is, well, risk-free, its beta will be zero Table 2A Expected return for asset x (%) 13 Risk free rate (%) 5 Beta of asset X 0.85 Table 2B Proportion of portfolio in Asset X 0.00 0.25 0.50 0.75 1.00 1.25 Expected Portfolio portfolio beta return 2
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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Transcribed Image Text:Question 2: 10 marks
Consider the information given in the Table 2A and complete Table 2B.
From the completed Table 2B, use the information to grpahically
present the Security Market Line (SML). Compute the slope of this
line.
Hints:
i)
ii)
When 100% money is invested in asset X (portfolio weight
1), the beta of the portfolio is 0.85
Since the risk-free asset is, well, risk-free, its beta will
be zero
Table 2A
Expected return for asset x (%) 13
Risk free rate (%)
5
Beta of asset X 0.85
Table 2B
Proportion of portfolio
in Asset X
0.00
0.25
0.50
0.75
1.00
1.25
Expected Portfolio
portfolio
beta
return
2
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