1. You have been given this probability distribution of the holding period return for KMP stock:...

1. You have been given this probability distribution of the holding period return for KMP stock:

State Probability Return

1 30% 20%

2 60% 12%

3 10% -5%

What are the expected return and standard deviation for KMP stock?

2. Portfolio A has a beta of 1.5. The market risk premium, RM-Rf, is 4.5%, and the risk-free rate is 4.5%. What is the expected return of the portfolio based on CAPM?

3. Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in 3 months. What is the effective annual rate of return for this investment?

Solutions

Expert Solution

1) expected return = 12.7%

Standard deviation = 6.9%

2) CAPM return = 11.25%

3) effective annual rate of return = 12.96%

jeff jeffy answered 1 year ago

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