The market risk premium (E[Rm]-Rf) is 6%. The risk-free rate (Rf ) is 2%. Asset X has beta equal to 0.8 and expected return equal to 7%. Asset Y has beta equal to 1 and expected return equal to 7.5%. What level of abnormal return can be expected from a 1:1 long-short portfolio of X and Y? a. 0.7% b. 0.6% c. 0.5% d. 0.4% e. None of the above
The market risk premium (E[Rm]-Rf) is 6%. The risk-free rate (Rf ) is 2%. Asset X has beta equal to 0.8 and expected return equal to 7%. Asset Y has beta equal to 1 and expected return equal to 7.5%. What level of abnormal return can be expected from a 1:1 long-short portfolio of X and Y? a. 0.7% b. 0.6% c. 0.5% d. 0.4% e. None of the above
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 3Q: Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation...
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The market risk premium (E[Rm]-Rf) is 6%. The risk-free rate (Rf ) is 2%. Asset X has beta equal to 0.8 and expected return equal to 7%. Asset Y has beta equal to 1 and expected return equal to 7.5%. What level of abnormal return can be expected from a 1:1 long-short portfolio of X and Y?
a. 0.7%
b. 0.6%
c. 0.5%
d. 0.4%
e. None of the above
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