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- Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of −0.3, and a beta coefficient of −1.5. Security B has an expected return of 12%, a standard deviation of returns of 10%, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?1. Stock Y has a beta of 1.2 and an expected return of 11.1 percent. Stock Z has a beta of .8 and an expected return of 7.85 percent. If the risk-free rate is 2.4 percent and the market risk premium is 7.2 percent, the reward-to-risk ratios for stocks Y and Z are ____ and ____ percent, respectively. Since the SML reward-to-risk is ____ percent, Stock Y is ____(undervalued/ overvalued) and Stock Z is ____(undervalued/ overvalued).*Stock A has a beta of 1.3 and an expected return of 10.2. Stock B has a beta of 0.8 and an expected return of 8.7. If these stocks are priced correctly according to the CAPM, what is the risk-free rate? Give your answer in percentage to the nearest basis point.
- Question: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A to beta of B.The expected return and standard deviation of Stock A are 12% and 24%, respectively. The expected return and standard deviation of Stock B are 5% and 19%, respectively. The correlation between the two stocks is 0.4. The risk-free rate in the economy is 1%. A. What is the Sharpe ratio for Stock A and Stock B? Show your calculation steps briefly and clearly. B. Calculate the optimal risky portfolio P*. You do not need to show your calculation steps for this subquestion. C. Now suppose that the correlation between the two stocks is -0.2 (instead of 0.4). Re-calculate the optimal risky portfolio P* and compare it to your answer in Part B. What do you observe? You do not need to show your calculation steps for this subquestion. D. Using the results above, briefly explain why investors might still consider investing in stocks with a (relatively) low Sharpe ratio as a part of their portfolio.Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(A) to beta of B(B).
- Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(βA) to beta of B(βB).Questions C and D is required. Thank you.c) Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B (B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i ( , where are standard deviations of asset i and market portfolio, is the correlation between asset i and the market portfolio)How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
- Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B (bB). please show all workings and not merely : Ra = 1/2 rbRf = 1/4 RaQuestions C is required. Thank you.c) Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B (B).