Question
In: Finance
Suppose you observe the following situation: Security Beta Expected Return Assume these securities are correctly priced....
Suppose you observe the following situation: Security Beta Expected Return Assume these securities are correctly priced. peat co. 1.20 11.0
Repeat co. 0.65 9.9
Based on the CAPM, what is the expected return on the market? What is the risk-free rate? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
Expected return on market %
Risk-free rate %
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Suppose you observe the following situation: Security Beta Expected Return Cooley, Inc. 1.6 19% Moyer Co....
Suppose you observe the following situation:
Security
Beta
Expected Return
Cooley, Inc.
1.6
19%
Moyer Co.
1.2
16%
If the risk-free rate is 8 %, are the securities correctly
priced? What would the risk-free rate have to be if they are
correctly priced?
(4) Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.15 12.90% Repete...
(4) Suppose you observe the following situation:
Security Beta Expected Return
Pete Corp. 1.15 12.90%
Repete Co. 0.84 10.20%
Assume the two securities are correctly priced. Based on CAPM, what
is the expected return on the market? What is the risk-free rate?
(15 points)
Suppose you observe the following situation: Standard Deviation Beta Expected Return Stock A 33% 1.2 0.13...
Suppose you observe the following situation:
Standard Deviation
Beta
Expected Return
Stock A
33%
1.2
0.13
Stock B
38%
0.8
0.12
Stock C
30%
1.1
0.11
T-Bill
-
-
0.03 + 0.5×9
Which one(s) has the highest
systematic risk? (Stock A, Stock B, Stock C, Hard to
Say)
Which one(s) has the highest
unsystematic risk? (Stock A, Stock B, Stock C, Hard to
Say)
If Stock C is correctly priced, what
is the reward-to-risk ratio (Sharpe ratio) for Stock A...
You hold a portfolio with the following securities: Security Portfolio weight Beta Expected Return Driscol Corporation...
You hold a portfolio with the following securities:
Security
Portfolio weight
Beta
Expected Return
Driscol Corporation
29%
3.3
38%
Evening Corporation
49%
1.7
20%
Frolic Corporation
22%
0.2
5%
The expected portfolio return is Blank 1. Calculate
the answer by read surrounding text. %. Round to the nearest 0.01%
(drop the % symbol). E.g., if your answer is 21.93%, record it as
21.93.
You have the following information about three securities A, B, and C: Security Expected return Beta...
You have the following information about three securities A, B,
and C:
Security
Expected return
Beta
A
24%
2.0
B
7%
0.5
C
2%
0
Given this information, you can definitely conclude that:
A.
All three securities are underpriced
B.
A, B, and C are fairly priced
C.
At least two of the three securities are mispriced
D.
At least one of A, B, or C is mispriced
Three securities have the following expected returns and beta: Securities Return Beta A 10% 0.65 B...
Three securities have the following expected returns and
beta:
Securities
Return
Beta
A
10%
0.65
B
18%
1.37
C
25%
0.22
a) Calculate the expected return of a portfolio if all the
securities are held equally.
b) Given the standard deviation for the securities A, B, and C is
12%, 14% and 18% while its covariance is 60, 20, and -30
respectively, estimate the standard deviation of this
portfolio.
c) Based on the risk-return relation, redesign the securities
holding proportion...
You are given the following table: Securities Weight Beta Expected return Variance of return 1 0.3...
You are given the following table:
Securities
Weight
Beta
Expected return
Variance of return
1
0.3
0.6
0.7
0.06
2
0.4
0.8
0.9
0.08
3
0.3
1.1
1
0.13
Variance of market portfolio return = 0.07
Given the assumption of a single factor model, calculate the
following:
The residual variance of each of the above stocks;
The expected return on this 3-stock portfolio;
The beta factor of this 3-stock portfolio;
The variance of this 3-stock portfolio.
Suppose you observe the following situation: Rate of Return If State Occurs State of Probability...
Suppose you observe the following situation:
Rate of Return If State Occurs
State of
Probability of
Economy
State
Stock A
Stock B
Bust
.30
−.10
−.08
Normal
.50
.11
.11
Boom
.20
.46
.26
a.
Calculate the expected return on each stock. (Do not
round intermediate calculations. Enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
Expected return
Stock A
%
Stock B
%
b.
Assuming the capital asset pricing model holds and Stock...
Suppose you observe the following situation: Rate of Return If State Occurs State of Probability...
Suppose you observe the following situation:
Rate of Return If State Occurs
State of
Probability of
Economy
State
Stock A
Stock B
Bust
.25
−.07
−.05
Normal
.45
.14
.14
Boom
.30
.49
.29
a.
Calculate the expected return on each stock. (Do not
round intermediate calculations. Enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
Expected return
Stock A
%
Stock B
%
b.
Assuming the capital asset pricing model holds and Stock...
Assume CAPM is correct (the market is the tangency portfolio), and all securities are priced correctly....
Assume CAPM is correct (the market is the tangency
portfolio), and all securities are priced correctly. a), b) Fill in
the blanks.
Security
Expected
Variance
Standard Correlation
BETA
Returns
Deviation (with
Market)
Market
0.08
________
0.40
________
________
Risk-free
0.02
________
_______
0.0
________
Stock
D
________
________
0.50
________ 0.8
Stock
E
________
________
1.60
0.40
________
c) Suppose a well known fund manager invites you to
invest in a special fund that promises expected returns of 0.06,...
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