3. The market portfolio expected return is 8% and its standard deviation is 16%. The risk-free...

3. The market portfolio expected return is 8% and its standard deviation is 16%. The risk-free rate is 1%. Assume that the CAPM holds. What is the standard deviation of the portfolio that invests 40% in the risk-free asset and 60% in the market? A. 8.1%. B. 9.6%. C. 10.5%. D. 11.1%. (use financial calculator)

4. The beta of company XYZ’s stock is 2. The annual risk-free rate is 2% and the market portfolio’s expected return is 9%. What is the expected return of the company’s stock? (use financial calculator) A 16% B.20% C.14 D.17%

5. The stock ABC has a beta of 1.6 and its standard deviation is 30%. Its correlation coefficient with the market return is 0.8. What is the standard deviation of the market return?(use financial calculator)

18%.
15%.
20%.
None of the answers is correct

Solutions

Expert Solution

Standard Deviation = (0.60)(0.16)

Standard Deviation of Portfolio = 9.60%

As per CAPM Model,

Expected Return = R_f + Beta(R_m - R_f)

Expected Return = 0.02 + 2(0.09 - 0.02)

Expected Return = 16.00%

Beta = Correlation*SD(A)SD(M)

SD(M) = 0.80(0.30)/1.6

SD(M) = 15%

jeff jeffy answered 1 year ago

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