Chapter 12 - McGrawHill Exercises

3. Capital Asset Pricing Model A. Suppose you invest $400,000 in Treasury Bills that have a yield to maturity of 4% and $600,000 in the market portfolio with an expected return of 14%. What is the expected return on your portfolio? Please show and explain. B. Given the information in part (A), what is the required expected return for an investment in a stock that has a beta of 0.7? Please show and explain.

Answer of the question immediately please

Q2.a. Consider the following scenario analysis. Scenario Probability Recession Normal Boom 0.20 0.60 0.20 iii. Which investment would Rate of Return you prefer? Stocks -5% +15 +25< Bonds +14% +84 i. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than booms? Explain your argument.< ii. Calculate the expected rate of return and standard deviation for each investment? +4

The following question illustrates the APT. Imagine that there are only two pervasive macroeconomic factors. Investments X, Y, and Z have the following sensitivities to these two factors:                  Investments                       b1                        b2                         X                                1.75                      0.25                         Y                                1.00                      2.00                         Z                                2.00                      1.00 Assume that the expected risk premium is 4% on factor 1 and 8% on factor 2. Treasury bills offer zero risk premium. a. According to the APT, what is the risk premium on each of the three stocks? b. Suppose you buy $200 of X and $50 of Y and sell $150 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? c. Suppose you buy $80 of X and $60 of Y and sell $40 of Z. What is the sensitivity of your portfolio to…

I only need question c

The following question illustrates the APT. Imagine that there are only two pervasive macroeconomic factors. Investments X, Y, and Z have the following sensitivities to these two factors:   Investment b1 b2 X 1.75 0 Y −1.00 2.00 Z 2.00 1.00     We assume that the expected risk premium is 7.8% on factor 1 and 11.8% on factor 2. Treasury bills obviously offer zero risk premium.   According to the APT, what is the risk premium on each of the three stocks? Suppose you buy $500 of X and $125 of Y and sell $375 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? Suppose you buy $200 of X and $150 of Y and sell $100 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? Finally, suppose you buy $400 of X and $50 of Y and sell $200 of Z. What is your portfolio's sensitivity now to each of the two factors? And what is the expected risk premium?

SITIcation. 24. In the capital asset pricing model, the beta coefficient is a measure of index of the degree of movement of an asset's return in response to a change in risk and an A) diversifiable; the prime rate B) nondiversifiable; the Treasury bill rate C) diversifiable; the bond index rate D) nondiversifiable; the market return 5. Loading document MacBook Air DII DD 80 F7 F8 F9 F2 F3 F4 F5 F6 呂

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(a)  What is CAPM and what purposes does it serve in finance in general, and in investments in particular? Discuss (b) Outline and explain the main assumptions of CAPM. What limitations do these place on its practical application? Explain   (c)The risk premium of the market portfolio is 9 %, the risk free rate is 5 % and the beta estimate for AELZ is β = 1.3. What is the risk premium? What is the expected rate of return?

Consider the following scenario analysis: Scenario Recession Normal economy Boom. Probability 0.20 Stocks Bonds 0.60 0.20 a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? b. Calculate the expected rate of return and standard deviation for each investment. c. Which investment would you prefer? Expected Rate of Return 1.3% 0.8 % Complete this question by entering your answers in the tabs below. Required A Required B Required C Calculate the expected rate of return and standard deviation for each investment. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place. Rate of Return. Bonds 14% 8% 4% Standard Deviation Stocks -5% 15% 25% 15.3 Answer is complete but not entirely correct. % 8.1 % Dequired A Required

4. please help and explain

When a firm invests in money market instruments, it is taking _______ and should expect __________.   Question 17 options:   1)  high risk, high returns   2)  high risk, low returns   3)  low risk, low returns   4)  low risk, high returns

Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)? Investors behave in accordance with Markowitz mean-variance portfolio theory. Investors are rational and risk averse. Investors all invest for the same period of time. Investors have heterogeneous expectations about expected returns and return variances for all assets. There is a risk free rate at which all investors can borrow or lend any amount. Capital markets are perfectly competitive, frictionless and efficient. Question Six: Which of the following expressions best describes the slope of the security market line? The slope of the security market line is equal to the Sharpe ratio. The slope of the security market line is equal to the Treynor ratio. The slope of the security market line is equal to alpha. The slope of the security market line is equal to the market risk premium. The slope of the security market line is equal to the standard deviation of the risky…

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.30 -7% 18% Normal economy Boom 0.60 20% 0.10 26% 10% 3% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? b. Calculate the expected rate of return and standard deviation for each investment. c. Which investment would you prefer? Complete this question by entering your answers in the tabs below. Required A Required B Required C Calculate the expected rate of return and standard deviation for each investment. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place. Expected Rate of Return Stocks 12.5% Bonds 11.7 % Standard Deviation % %

If possible please answer d as well please

12 - Your personal opinion is that a security has an expected rate of return of 0.11. It has a beta of 2. The risk-free rate is 0.05 and the market expected rate of return is 0.09. According to the Capital Asset Pricing Model, this security is a) Cannot be determined from data provided. b) O fairly priced. 1385 c) O overpriced. d) O underpriced.

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Security A, standard deviation = 25% beta = 1.5 Security B, standard deviation = 40% beta = 1/3   If both securities have the same return, which should I invest in? Explain using knowledge of Capital Asset Pricing Model

Question 3 a. According to the Capital Asset Pricing Model, what must be the beta of a portfolio with E[r] = 12%, if rf 3% and E[TM] = 8%? b. The market price of a security is $50. Its expected rate of return is 16%. The risk-free rate is 8%, and the market risk premium is 8.5%. What will be the market price of the security if its covariance with the market portfolio doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity.

Question 6?

3.1   Problem 3: You have access to two investment opportunities. Mutual Fund A, which promises 20% expected return with a variance of 0.36, and Mutual Fund B, which promises 15% expected return with a variance 0f 0.12. The covariance between the two is 0.084.   Suppose that you seek to construct a portfolio with an expected return equal to 18%. What proportions of your wealth should you invest in A and B? What is the standard deviation of such portfolio?

CAPM