What historic data is needed to obtain these parameter estimates? In the table below, obtain the composition of the active portfolio by completing the un-normalised, and normalised weights columns in the active portfolio. Normalised Share Alpha, a Specific risk, n Un-normalised weights weights AAA 5% 40% BBB 4% 30% CCC -3% 50% What is the implication of the negative alpha and what drawback does this provide n terms of the practical use of this model?

What historic data is needed to obtain these parameter estimates? In the table below, obtain the composition of the active portfolio by completing the un-normalised, and normalised weights columns in the active portfolio. Normalised Share Alpha, a Specific risk, n Un-normalised weights weights AAA 5% 40% BBB 4% 30% CCC -3% 50% What is the implication of the negative alpha and what drawback does this provide n terms of the practical use of this model?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Using the data generated in the previous question (Question 1);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?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph Please answer A, B, C & D
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The following questions are based on the given information from table of probabilitydistributions of returns on investment individual shares and portfolio below:Table 3: Probability distributions of returns on investment for individual shares and portfolio. State ofEconomy Probabilityof theStates Return onShare A(rA) Return onShare B(rB) Return on Portfolio AB(rAB)1 0.20 15% -5% 5%2 0.20 -5% 15% 5%3 0.20 5% 25% 15%4 0.20 35% 5% 20%5 0.20 25% 35% 30% Given: By using the above information, demonstrate the rate of risk (variance and standarddeviation) for each of:(i) Share A (ii) Share B (iii) Portfolio A and B
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It is a risk adjusted performance measure that represents the average return on a portfolio. a. sharpe ratio b. Treynor index
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