Question
In: Finance
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and...
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 49%. Portfolios A and B are both well diversified.
| Portfolio | Beta on M1 | Beta on M2 | Expected Return (%) |
| A | 1.6 | 2.4 | 39 |
| B | 2.3 | -0.7 | 9 |
What is the expected return–beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Expected return–beta relationship E(rP) = % + βP1 + βP2
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and...
Suppose there are two independent economic factors,
M1 and M2. The risk-free
rate is 5%, and all stocks have independent firm-specific
components with a standard deviation of 56%. Portfolios A
and B are both well diversified.
Portfolio
Beta on
M1
Beta on
M2
Expected
Return (%)
A
1.7
2.2
35
B
2.1
-0.8
8
What is the expected return–beta relationship in this economy?
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
Expected return–beta relationship
E(rP) =...
Problem 10-4 Suppose that there are two independent economic factors, F1 and F2. The risk-free rate...
Problem 10-4
Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 5%, and all stocks have independent firm-specific
components with a standard deviation of 35%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
1.1
1.5
25
%
B
2.0
–0.15
22
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums,...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 7%,...
Suppose that there are two independent economic factors, F1 and
F2. The risk-free rate is 7%, and all stocks have independent
firm-specific components with a standard deviation of 47%.
Portfolios A and B are both well-diversified with the following
properties: Portfolio Beta on F1 Beta on F2 Expected Return A 2.2
2.5 25 % B 2.8 –0.25 20 % What is the expected return-beta
relationship in this economy?
Calculate the risk-free rate, rf, and the factor risk premiums,
RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 9%,...
Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 9%, and all stocks have independent firm-specific
components with a standard deviation of 49%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
2.4
2.6
27
%
B
3.0
–0.26
22
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%,...
Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 6%, and all stocks have independent firm-specific
components with a standard deviation of 36%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
1.2
1.6
26
%
B
2.1
–0.16
23
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%,...
Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 6%, and all stocks have independent firm-specific
components with a standard deviation of 36%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
1.2
1.6
26
%
B
2.1
–0.16
23
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%,...
Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 6%, and all stocks have independent firm-specific
components with a standard deviation of 46%. Portfolios A
and Bare both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
2.1
2.4
35%
B
3.0
–0.24
30%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and
RP2, to complete...
uppose that there are two independent economic factors, F1 and F2. The risk-free rate is 7%,...
uppose that there are two independent economic factors, F1 and
F2. The risk-free rate is 7%, and all stocks have independent
firm-specific components with a standard deviation of 37%.
Portfolios A and B are both well-diversified with the following
properties: Portfolio Beta on F1 Beta on F2 Expected Return A 1.3
1.7 27 % B 2.2 –0.17 24 % What is the expected return-beta
relationship in this economy? Calculate the risk-free rate, rf, and
the factor risk premiums, RP1 and...
Suppose the risk free rate is 4%, the expected rate of return is 8% and the...
Suppose the risk free rate is 4%, the expected rate of return is
8% and the variance of a portfolio is estimated as 500%. What is
the slope of the Capital Allocation Line? Interpret the meaning of
your estimation of the slope. [see p.168 of your text]
Imagine that the expected returns that are associated with an
investment are 0.06, 0.08, 0.094, 0.12 and 0.134. If the standard
deviations that are associated with the returns are 0, 0.022,
0.066, 0.154,...
1. Suppose we have two blocks of masses m1 and m2. The block with mass m1...
1. Suppose we have two blocks of masses m1 and m2. The block
with mass m1 is moving towards block m2 at speed v. After the
collision, we measure the total kinetic energy and find that the
total kinetic energy after the collision is m2/(m1+m2) less than
the kinetic energy before the collision. Find the final speeds of
the two blocks. What type of collision is this?
2. Explain, in words, how we know that a freely spinning
asteroid in...
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