Suppose there are only three assets (A, B, and C) in a market. Given the following information: Asset Market Expected Standard Correlation Beta with market Value Return Deviation portfolio A $1,000,000 (i) 50% 0.3 2.9 В $2,000,000 8% 15% (iv) 1.05 $2,000,000 3% 0% (v) Market $5,000,000 15% (ii) 1 (iii) Fill in the missing values in the table.

Suppose there are only three assets (A, B, and C) in a market. Given the following information: Asset Market Expected Standard Correlation Beta with market Value Return Deviation portfolio A $1,000,000 (i) 50% 0.3 2.9 В $2,000,000 8% 15% (iv) 1.05 $2,000,000 3% 0% (v) Market $5,000,000 15% (ii) 1 (iii) Fill in the missing values in the table.

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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d. The beta for an asset with a required return of 19.559% when the risk-free rate and market return are 10% and 17.9%, respectively, is (Round to two decimal places.)
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™?
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Risk-free rate, RF 1% The required return for the asset is %. (Round to two decimal places.) C Market return, m 5% Beta, b 0.5
Calculate the optimal risky portfolio for the following cases when short-sales are allowed. Compute its expected return and the standard deviation of its returns. 1. Two risky assets: Rp = 3, R' = [6, 9], and 4 5 5 20 2. Three risky assets: Rp = 4, R' = [5,9, 8], and [10 0 0 E=0 40 0 0 20 3. Three risky assets: Rp = 5, R' = [12, 9, 8], and 40 10 -5] E= 10 20 0 5 0 30 4. Five risky assets: Rp = 2, R' = [5, 3, 18, 9, 2], and %3D 2 16 0. -12 5 -12 20 16 10 7 14 27 14 9. -13 8. 7 27 13
Assume that Rf = 6 percent and the market risk %3D premium (Km - Rf) is 7.0 percent. Compute Kj for the following beta 1.9
hf.3
Manipulating CAPM Use the basic equation for the capital asset priding model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.63 when the risk-tree rate and market return are 5% and 13%, respectively b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%. C. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%. d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market retum are 6% and 9.7%, respectively a. The required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively, is % (Round to two decimal places.)
Compute the required rate of return using the CAPM and the following information: Beta = .85 Expected return on the market = 9% Risk-Free Rate = 1.50% a. 7.50% b. 7.88% C. 9% d. 1.50% e. 7.65%
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.
Father Time asks us what is the expected return on asset A if it has a beta of .75, the expected market return is 12%, and the risk- free rate is 4%? А. 6.0% В. 6.5 C. 7.0 D. 8.0 E. 10.0
What is the standard deviation of the portfolio that invests equally in all three assets M, N, and O?
Consider 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%) = 48.93

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