The Sharpe ratio of an asset Alpha is 0.8. Alpha has and expected return of 12%...

The Sharpe ratio of an asset Alpha is 0.8. Alpha has and expected return of 12% and a standard deviation of 20%. Youhavebeen tasked to arrive at the expected return of an asset Gamma. Themarketreturn in this economy is 14% and the beta (systematic risk) of Gamma with market return is 1.4. What is the expected return of asset Gamma?

Expert Solution

Sharphe Ratio = (Expected Return - Rf) / S.D.

Rf = Risk free Return

S.D. =Standard deviation

We have Sharpe ratio(0.8)' expected return(12%) and S.D. of asset alpha(20%), therefore we can calculate Rf

0.8 = (12% - Rf) / 20%

Rf = 16% - 20% = -4%

As we can see, the rf is coming to negative, which is not the usual case.

We will calculate the expected return of Gamma using CAPM. As per CAPM model,

Expected Return = Rf + (Rm - Rf)*B

Rm =Market Return = 14%

B = Beta =1.4

Rf( as calculated above) = -4%

Expected return = -4% + (14% - (-4%))*1.4

= -4% + 25.2%

Expected return of gamma = 21.2%

jeff jeffy answered 2 years ago

Compute the Sharpe ratio of the AlphaFund mutual fund using the following information: AlphaFund expected return...

Compute the Sharpe ratio of the AlphaFund mutual fund using the following information: AlphaFund expected return = 7%, expected market return = 9.5%, expected risk-free return = 1%, expected standard deviation of AlphaFund risk premium = 14.2%, predicted beta of AlphaFund = 1.28

Company A has an Asset turnover ratio of .531, return on asset ratio of .127, and...

Company A has an Asset turnover ratio of .531, return on asset ratio of .127, and return on equity of .165. What does that tell me about company A? Company B has an Asset turnover ratio of 1.553, return on asset ratio of .012, and return on equity of .07. What does that tell me about company B? Compare Company A to Company B. The industry average has an Asset turnover ratio of .81, return on asset ratio of .113,...

Asset A has expected return of 16% and variance of 12.98%. Asset B has an expected...

Asset A has expected return of 16% and variance of 12.98%. Asset B has an expected return of 8%, and a variance of 5.29%. The correlation coefficient between the two assets is 0.6. Portfolio X is composed 50% of portfolio A and 50% of portfolio B. Variance of portfolio X is? Answer percent.

The Sharpe ratio and Jensen’s alpha of portfolio A are 0.10 and 0.004, respectively. The risk-free...

The Sharpe ratio and Jensen’s alpha of portfolio A are 0.10 and 0.004, respectively. The risk-free rate is 3%, the average return on the market portfolio is 7%, the variance of the market portfolio is 0.09, and the correlation coefficient between A and the market portfolio is 0.7. What is the expected return and the variance of A?

Expected return of stock Alpha is 8 percent and of stock Beta is 12 percent. The...

Expected return of stock Alpha is 8 percent and of stock Beta is 12 percent. The standard deviation of the stocks are 13 percent and 18 percent respectively. The correlation between these two stocks is 0.4. If the portfolio manager has decided to invest all the funds that he holds in some proportion in these two assets. The expected return of the portfolio based on this proportion is 11.5%. What are the weights in each of the stocks? What is...

What is the Sharpe Ratio of an equity fund with an expected risk premium of 8%...

What is the Sharpe Ratio of an equity fund with an expected risk premium of 8% and a standard deviation of 18%? round your answer to two decimal places Answer:

A. Alpha and the CAPM A stock with a beta of 0.77 has an expected return...

A. Alpha and the CAPM A stock with a beta of 0.77 has an expected return of 12% and an alpha of 1.5% when the market expected return is 13% . What must be the risk free rate that satisfies these conditions? 2.14% 2.13% 2.16% 2.15% B. Portfolio Beta An investor places $6,000 in Stock A, $5,000 in Stock B and $12,000 in Stock C. Stock A has a beta of 1.05, Stock B has a beta of 1.25 and...

Asset A has an expected return of 15% and standard deviation of 20%. Asset B has an expected return of 20% and standard deviation of 15%.

1. Asset A has an expected return of 15% and standard deviation of 20%. Asset B has an expected return of 20% and standard deviation of 15%. The riskfree rate is 5%. A risk-averse investor would prefer a portfolio using the risk-free asset and _______. A) asset A B) asset B C) no risky asset D) cannot tell from data provided2. The Sharpe-ratio is useful for A) borrowing capital for investing B) investing available capital C) correctly...

An asset has a beta of 2.0 and an expected return of 20%. The expected risk...

An asset has a beta of 2.0 and an expected return of 20%. The expected risk premium on the market portfolio is 5% and the risk-free rate is 7%. What is the equilibrium return? Select one: a. 0.14 b. 0.17 c. 0.13 d. 0.20

suppose asset a has an expected return of 10% and a standard deviation of 20% asset...

suppose asset a has an expected return of 10% and a standard deviation of 20% asset b has an expected return of 16% and a standard deviation of 40%.if the correlation between a and b is 0.6,what are the expected return and standard deviation for a prtifolio comprised of 40% asset a

Question