Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Consider the information for assets A, B, and C below: Probability Return on A 0.2 0.4 0.4 State Boom Average Bust 0.3 0.2 0.1 Return on B Return on C 0.05 9.15 0.2 0.1 0.25 0.3 Consider Portfolio (Y) comprising 60% Asset A and 40% Asset C. What is the variance of portfolio Y™?arrow_forwardBased on the information in the yellow shaded areas: a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?arrow_forward2. The following table gives information on the return and variance of assets A and B, whose covariance is 0.0003: A B 0} 0,0009 0,0012 E (R₂) 0,05 0,06 a. Does the portfolio (1/3 of A and 2/3 of B) dominate the portfolio (2/3 of A and 1/3 of B)? b. Does the portfolio (1/2, 1/2) belong to the efficient frontier? c. If there were the possibility of lending and borrowing at 2%, would the portfolio (1/2, 1/2) belong to the new efficient frontier?arrow_forward
- Use the following table to calculate the expected return from the asset. Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 20.00% 18.75% 17.50% 15.00%arrow_forwardConsider 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_forwardQu. 5 please help and show all steps with formulas usedarrow_forward
- hf.3arrow_forwardNikularrow_forwardManipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.48 when the risk-free rate and market return are 8% and 13%, respectively. b. Find the risk-free rate for a firm with a required return of 14.684% and a beta of 1.47 when the market return is 12%. c. Find the market return for an asset with a required return of 12.040% and a beta of 0.95 when the risk-free rate is 5%. d. Find the beta for an asset with a required return of 13.312% when the risk-free rate and market return are 10% and 12.3%, respectively. C a. The required return for an asset with a beta of 1.48 when the risk-free rate and market return are 8% and 13%, respectively, is %. (Round to two decimal places.)arrow_forward
- Consider the case of two financial assets and three market conditions (states). The tablebelow gives the respective probability for each market condition and the return of each assetin each one of them. Market Conditions State Recession Normal Expansion Probability of state 30% 40% 30% Return of asset A -30% 20% 55% Return of asset B -10% 70% 0% Consider the portfolio with 50% investment in each of the two assets above. Calculatethe expected return and the standard deviation of the portfolio.arrow_forwardWhat is the standard deviation of the portfolio that invests equally in all three assets M, N, and O?arrow_forwardConsider the following portfolio of assets: Loan Weight 1 0.30 2 0.70 Expected returni ம σ2 13% 11% 9.06% 82.0% P12=-0.87 8.72% 76.0% 012-75.0% What is the variance of the portfolio (round to two decimals)? Note: a^2 denotes the square of a. For example, 2^2 = 4, 3^2=9 (0.3)^2*(82.0%) + (0.7)^2*(76.0%) + (0.3) (0.7)(-0.87) (9.06%) (8.72%) = 30.19 (0.3)^2 (82.0%) + (0.7)^2*(76.0%) + 2(0.3) (0.7)(-0.87) (9.06 %) (8.72%) = 15.75 (0.3)^2*(82.0%) + (0.7)^2*(76.0%) + [(0.3) (0.7)]^2 (-0.87) (9.06%) (8.72%) = 41.59 (0.3) (82.0%) + (0.7) (76.0%) + 2(0.3) (0.7)(-0.87) (9.06 %) (8.72%) = 48.93arrow_forward
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