You currently have $100 of 8%. Suppose the risk-free rate is 5%, and there is another portfolio that has an expected return of 20% and a volatility of 12%. a. What portfolio has a higher expected return than your portfolio but with the same volatility? vested in a portfolio that has an expected return of 12%o and a volatility b. What portfolio has a lower volatility than your portfolio but with the same expected return?
Q: Suppose you have $2,000 to invest. The market portfolio has an expected return of 10.5 percent and a…
A: Let the weight in Risk free Asset be A Therefore, weight in market portfolio be 1-A
Q: Suppose the risk-free return is 4% and the market portfolio has an expected return of 10% and a…
A: Calculation of 3M's beta with respect to market: Beta of 3M is determined by multiplying the…
Q: You have identified the tangent market portfolio, which has an expected return of 10.4% and a…
A: Volatility of tangent portfolio (SD) = 33.9% Volatility of risk free portfolio = 0 Weight of tangent…
Q: Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free…
A: Given the following information: Beta of MegaChip: 1.3 Beta of Littlewing: 0.7 Risk free rate: 4%…
Q: Consider a portfolio consisting of the following three stocks: E. The volatility of the market…
A: This is a complex question with several subparts, so according to Bartleby guidelines, we will…
Q: The optimal risky portfolio has an expected return of 15% and a standard deviation of 10%. The…
A: Optimal risky portfolio is suitable to risk averse investors who want to minimise their investment…
Q: Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required…
A: A portfolio comprises of different securities, funds, assets and derivates which are purchased by…
Q: Suppose the risk-free return is 4.1% and the market portfolio has an expected return of 9.3% and a…
A: In CAPM; Capital Asset Pricing Model, the expected return for a single stock is ascertained by…
Q: You have been managing a $5 million portfolio that hasa beta of 1.15 and a required rate of return…
A: Risk-free rate: This can be described as the rate of return of the asset which has zero risks.…
Q: Consider the following two investment alternatives: First, a risky portfolio that pays a 15% rate of…
A: Given: Return Probability 15% 40% 5% 60%
Q: You compute the optimal risky portfolio to have the expected return of 12% and standard deviation of…
A: Here, Expected Return of Portfolio is 12% Standard Deviation is 20% Risk-free rate is 4% Risk…
Q: Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a…
A: Calculation of expected returns and beta values: Given information: Market return is 13%, Risk free…
Q: During the same year, the risk-free rate was 5% and the return on the m portfolio was 12%. (1) What…
A: Return on portfolio and beta of portfolio can be calculated by weighted average return and beta of…
Q: You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of…
A: An investment is refer as an asset purchased with intention to earn income at some time in future.…
Q: A portfolio has a beta of 1.2 and an actual return of 14.1 percent. The risk-free rate is 3.5…
A: Given: Beta = 1.2 Actual return = 14.1% Risk free rate = 3.5% Market risk premium = 7.4%
Q: A portfolio has an average return of 14.4 percent, a standard deviation of 18.5 percent, and a beta…
A: The Sharpe ratio: The Sharpe ratio is one of the most commonly used measures to assess the…
Q: Suppose that the risk-free rate ry = 0.03, the expected market return µM = 0.11, and the market…
A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: Your portfolio has a beta of 1.24, a standard deviation of 14.3 percent, and an expected return of…
A: Portfolio beta = 1.24 Standard deviation = 14.3% Expected return = 12.50% Market return = 10.7% Risk…
Q: You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of…
A: Given: Investment = $1000 Return on treasury bills = 2.5% Weight of X = 35% Weight of Y = 65% Return…
Q: Security F has an expected return of 10 percent and a standard deviation of 43 percent per year.…
A: The expected return of the company is the return of security adjusted with the volatility with…
Q: You are told that the expected return of the market portfolio is 10%, and its standard deviation is…
A: Efficient portfolio is define as portfolio that provides the best possible return at a known risk…
Q: Consider the following information: the risk-free rate is 2%, and the expected rate of return on the…
A: Risk free rate (Rf) = 2% Market portfolio return (Rm) = 10% Beta = 1.5 We need to find the required…
Q: You are considering investing $1,100 in a complete portfolio. The complete portfolio is composed of…
A: Risky portfolio: Expected return of risky portfolio=WeightX×ReturnX+WeightY×ReturnYExpected return…
Q: You currently have ¢100,000 invested in the shares of Barko Ltd that has an expected return of 15%…
A: Expected return is calculated by weighted average mean of return of stocks.Combined Standard…
Q: A portfolio returned 13% last year, with a beta equal to 1.5. The market return was 10%, and the…
A: Portfolio return = 13% Beta = 1.50 Market return = 10% Risk free rate = 4%
Q: You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 36%.…
A: Risky portfolio rate of return (Re) = 18% Risky portfolio standard deviation (Se) = 36% T bill rate…
Q: Suppose the risk-free rate is 6 percent and the market portfolio has an expected return of 12…
A: The question can be answered by determining the expected return for the stock using the capital…
Q: You are considering investing $1,000 in a T-bill that pays 0.06 and a risky portfolio, P,…
A: To solve the question we first need to determine the expected return of the risky portfolio then…
Q: Portfolios A and B are actively managed. Based on current dividend yields and expected capital gains…
A: given, ra=10%rb=17%betaa=0.5betab=1.4rf=2%rm=12%σa=26%σb=35%σm=21%
Q: Expected return and standard of a risky portfolio are 11% and 21% respectively. Risk-free rate is…
A: Here, Expected Return of Risky Portfolio is 11% Standard Deviation of Risky Portfolio is 21% Risk…
Q: tock has a beta of 1.2 and an expected return of 16%. The risk-free asset currently earns 5%. a)…
A: In this we have to use capital assets pricing model.
Q: If the expected rates of return on Portfolio A and B are 11% and 14% respectively and the Beta of A…
A: CAPM or Capital Asset Pricing Model is a model which defines the relationship between expected…
Q: What is the expected return of a portfolio that has $8,000 invested in S and $2,000 invested in T?…
A: Return of Stock S = (0.25 * 30%) + ( 0.5 * 15% )+ (0.25 * -10%) = 7.5 + 7.5 - 2.5 = 12.5 Return of…
Q: You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of…
A: In treasury bills:(1-a) in risky portfolio0.35x+0.65y=1-aExpected return from…
Q: Assume that you have just received information from your investment advisor that your portfolio has…
A: Portfolio Investment is termed for investor holding whose funds are diversified in several assets…
Q: The Treasury bill rate is 4.9%, and the expected return on the market portfolio is 11.1%. Use the…
A: 1. Risk premium =expected return on the market - Treasury bill rate Risk premium = 11.1% - 4.9%…
Q: The risk-free rate is 2%, the market risk premium is 8.00%, and portfolio A has a beta of 2. What is…
A: Given: Risk free rate = 2% Market risk premium = 8% Beta of portfolio = 2 Computation of required…
Q: Suppose that you have $1 million and the following two opportunities from which to construct a…
A: The expected rate of return is the return an investor expects from its investment. It helps in…
Q: The Treasury bill rate is 6%, and the expected return on the market portfolio is 14%. According to…
A: (a) Risk premium on the market = Expected market return - risk free return = 14%…
Q: HNL has an expected return of 18% and KOA has an expected return of 22% f you create a portfolio…
A: The formula used is shown:
Q: Suppose you have the following investments: Security Amount Invested Expected Return Beta A…
A: Security Amount Invested Expected Return Beta A $2,000 5% .80 B $4,000 10% .95 C $6,000 15%…
Q: Your portfolio has a beta of 1.73, a standard deviation of 29 percent, and an expected return of…
A: Treynor ratio = Portfolio Return - Risk Free ReturnPortfolio Beta
Q: You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 30%.…
A: Sharpe ratio is used to help investors understand the return of an investment compared to its risk.…
Q: You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of…
A: This is solved using concepts of portfolio management
Q: Suppose the risk-free return is 3.5% and the market portfolio has an expected return of 11.9% and a…
A: a) Beta with respect to market: = (Volatility of Security * Correlation of security with market)/…
Q: You currently have $100000 invested in a portfolio that has an expected return of 12% and a…
A: Portfolio consist bunch of different investment. Investors, invest their money in different assets…
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Assume that there is a portfolio with an E(r) =20% and σ = 30%. Also, the risk-free rate of return on T-Bills is 7%. If you are a risk-averse investor with degree of risk aversion A=4 would you invest in the risky portfolio or in the risk free asset? And what if your A=2? Assume that there is a portfolio with an E(r) =20% and σ = 30%. Also, the risk-free rate of return on T-Bills is 7%. If you are a risk-averse investor with degree of risk aversion A=4 would you invest in the risky portfolio or in the risk free asset? And what if your A=2?You currently have $100,000 invested in a portfolio A that has an expected return of 12% and a volatility of 8%. Suppose the risk-free rate is 4%, and there is another portfolio B that has an expected return of 20% and a volatility of 12%. Is the portfolio A you hold now efficient? If not, construct a portfolio that outperforms yoursConsider a portfolio consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected return of each stock. b. Using your answer from part (a), calculate the expected return of the portfolio. c. What is the beta of the portfolio? d. Using your answer from part (c), calculate the expected return of the portfolio and verify that it matches your answer to part (b). a. Compute the beta and expected return of each stock. (Round to two decimal places.) TITLT Data table Portfolio Weight (A) Volatility (B) Correlation (C) Expected Return (E) % Beta (D) НЕС Согр 0.28 13% 0.33 Green Widget (Click on the following icon a in order to copy its contents into a spreadsheet.) 0.39 27% 0.61 % Portfolio Weight Alive And Well 0.33 14% 0.43 Volatility 13% Correlation with the Market Portfolio НЕС Согр Green Widget 0.28 0.33 b. Using your answer from part (a), calculate the expected…
- The risk free rate is 3%. The optimal risky portfolio has an expected return of 9% and standarddeviation of 20%. Answer the following questions.a) Assume the utility function of an investor is U = E(r) − 0.5Aσ2. What is condition ofA to make the investors prefer the optimal risky portfolio than the risk free asset? b) Assume the utility function of an investor is U = E(r) − 2.5σ2. What is the expectedreturn and standard deviation of the investor’s optimal complete portfolio?3. Asset 1 has an expected return of 10% with a standard deviation of 25%, and asset 2 has an expected return of 15% and a standard deviation of 35%. The covariance between the returns is 0.0175 and the risk-free rate is 8%. (a) What is the optimal portfolio consisting of risky assets and risk-free asset if you want an average return of 0.10? Answer. (b) Can you find a portfolio consisting of risky and risk-free assets with average return of 0.10 and variance of return 0.009? Why or why not? Answer.You are told that the expected return of the market portfolio is 10%, and its standard deviation is 10%. There exists a risk-free asset in the economy. You hold an efficient portfolio with an expected return of 12% and a standard deviation of 15%. [hint: The efficient portfolio is a combination of the market portfolio and the risk-free asset.] (1) In forming this efficient portfolio do you borrow or lend? Support your answer with relevant calculations. (2) What is the risk-free rate?
- An Equity has a beta of 0.9 and an expected return of 9%. A risk free asset currently earns 2%. i.) What is the expected return on a portfolio that is equally invested in two assets? ii.) If a portfolio of the two assets has an expected return of 6%, what is its beta? iii.) If a portfolio of the two assets has a beta of 1.5, what is its weight ? Iv.) If a portfolio of the two assets has a beta of 1.5, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.Consider a portfolio consisting of the following three stocks: LOADING... . The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected return of each stock. b. Using your answer from part a, calculate the expected return of the portfolio. c. What is the beta of the portfolio? d. Using your answer from part c, calculate the expected return of the portfolio and verify that it matches your answer to part b. Question content area bottom Part 1 a. Compute the beta and expected return of each stock. (Round to two decimal places.) Portfolio Weight (A) Volatility (B) Correlation (C) Beta (D) Expected Return (E) HEC Corp 0.27 11% 0.33 enter your response here enter your response here% Green Widget 0.33 29% 0.71 enter your response here enter your response here% Alive And Well 0.40 11% 0.53 enter your response here enter…Suppose you are given stocks A and B. Stock A has an expected return of 11% and a standard deviation of 4%. Stock B has an expected return of 21% and a standard deviation of 10%. The correlation between them is -1. Suppose it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Round answer to 3 decimal places.)
- Assume that there are two factors that price assets. Interest rate rf = 4%. You have thefollowing information about two well-diversified arbitrage-free risky portfolios. (a) Calculate the risk premium of the two risk factors. (b) There is a third well-diversified portfolio with β1 = 1.1 and β2 = 0.9. What is thisportfolio’s arbitrage free expected return? (c) Suppose the forecasted return of the portfolio in the question (b) is 13.5%. Show how youcould construct an arbitrage portfolio.Suppose Stock A has B = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate is 5%. Also consider that the covariance between B and the market is 0.135. Assume the CAPM is true. Answer the following questions: a) Calculate the expected return on share B. b) Find the equation of the Capital Market Line (CML). c) Build a portfolio Q with B = 0 using actions A and B. Indicate weights (interpret your result) and expected return of portfolio Q.4. Suppose portfolio P's expected return in 12%, its volatility (standard deviation) is 20%, and the risk-free rate is 5%. Suppose further that a particular mix of asset i and P yields a portfolio P’with an expected return of 18% and a volatility of 30%. a. Compute for the Sharpe ratio of P. b. Compute for the Sharpe ratio of P'. Is adding asset i beneficial? Explain.