Your opinion is that CSCO has an expected rate of return of 0.1375. It has a beta of 1.3. The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security is A. underpriced. B. overpriced. C. fairly priced. D. Cannot be determined from data provided.
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Your opinion is that CSCO has an expected
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- Suppose the Capital Asset Pricing Model (CAPM) is valid in a market. Use CAPM to ex- plain and answer following questions. Note: There is no relationship between each situation. (a) Can security A exist in the market? (Hint: Security market line) If yes, compute risk premium on security A. If not, is this security underpriced or overpriced? Expected return 5% Asset Beta Risk-free Market 12% 1 A 15% 1.3 (b) Can security B exist in the market? (Hint: Security market line) If yes, compute risk premium on security B. If not, is this security underpriced or overpriced? Expected return 6% Asset Beta Risk-free Market 13% 16.5% 1 1.5 Suppose the expected cash flow can be collected from investment in security B is $1000 at time 1. And an investor thinks the beta of security B is 1.8. But the actual beta is given in the above table. Then how much more/less (you also need to select "more" or "less") will he offer for the firm than it is truly worth at time 0? Hint: the present value of the cash…multiple choice, Security X has an expected rate of return E(R) of 0.11 and a beta of 1.3. The risk-free rate is 0.04 and the market expected rate of return is 0.08. According to the Capital Asset Pricing Model (CAPM), this security is underpriced. overpriced. fairly priced. cannot be determined from data provided.9. Your personal opinion is that security x has an expected rate of return of .11. It has a beta of 1.5. The risk free rate is .05 and the market expected rate of return is .09. According to the Capital Asset Pricing Model, thiss security is a. underpriced. b. overpriced. c. fairly priced. d. can't be determined from data e. none of these.
- Suppose you observe the following situation:Security Beta Expected ReturnDiamond Co 1.3 0.2Spade Co 0.8 0.14 (a) According to the above information, could we figure out the market return and risk-free rate? Explain your answer. (b) Discuss the possibility of including zero beta or negative beta assets in your portfolio. Explain the pros and cons of including these types of assets.Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, security X is _________. A. fairly pricedB. overpricedC. underpricedD. None of the aboveWe believe that the single factor model can predict any individual asset’s realized rate of return well. Both Portfolio A and Portfolio B are well-diversified: ri = E(ri) + βiF + Ei, where E(ei) = 0 and Cov(F, i) = 0 A B β 1.2 0.8 E(r) 0.1 0.08 (1) What is the rate of return of the risk-free asset? (2) What is the expected rate of return of the well-diversified portfolio C with βC = 1.6, which also exists in the market? (3) A fund constructs a well-diversified portfolio D. Studies show that βD = 0.6. The expected rate of return of D is 0.06. Is there an arbitrage opportunity? If so, construct a trading strategy to earn profits with no risk. If not, why?
- Please do a and b separate (Question 2) a) Plot the Security Market Line (SML)b) Superimpose the CAPM’s required return on the SMLc) 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.Within the context of the capital asset pricing model (CAPM), assume:∙ Expected return on the market = 15%∙ Risk-free rate = 8%∙ Expected rate of return on XYZ security = 17%∙ Beta of XYZ security = 1.25Which one of the following is correct?a. XYZ is overpriced.b. XYZ is fairly priced.c. XYZ’s alpha is −.25%.d. XYZ’s alpha is .25%.Within the context of the capital asset pricing model (CAPM), assume:∙ Expected return on the market = 15%∙ Risk-free rate = 8%∙ Expected rate of return on XYZ security = 17%∙ Beta of XYZ security = 1.25Which one of the following is correct?a. XYZ is overpriced.b. XYZ is fairly priced.c. XYZ’s alpha is −.25%.d. XYZ’s alpha is .25%. Please explain in detail the calculation
- True or False. and briefly explain. a. Under the Capital Asset Pricing Model (CAPM), if a stock has a zero beta, then it must be identical to the riskfree asset. b. For Value at Risk (VaR) to be useful, the returns have to be normally distributed. c.If the borrowing rate is higher than the lending rate, a particular risk-averse investor can achieve a maximized utility score of UC* by choosing optimally. Now if the borrowing rate is equal to the lending rate, this investor must be able to achieve a utility score higher than UC*SITIcation. 24. In the capital asset pricing model, the beta coefficient is a measure of index of the degree of movement of an asset's return in response to a change in risk and an A) diversifiable; the prime rate B) nondiversifiable; the Treasury bill rate C) diversifiable; the bond index rate D) nondiversifiable; the market return 5. Loading document MacBook Air DII DD 80 F7 F8 F9 F2 F3 F4 F5 F6 呂In the equation for expected return from the CAPM, the only input specific to the firm in question is...O. the risk-free rate.O. the market risk premium.O. beta.O. all of the above.