2. Given the following data, is there an Arbitrage? What is the Profit when St > K and St < K for the following two scenarios? a) When the price of the put is 2.5 b) When the price of the put is $0.5 C = 3 SO = 31 T= 4months r = 9% K = 30 D= 0
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- if the volatility was reduced to 10.500% when the spot rate fell to $1.2483=€1.00 ? The same call option cost if the volatility was reduced to 10.500% when the spot rate foll $1.2483=€1.00 would be ◻ Data tableYou are given the following information for Wine and Cork Enterprises (WCE): rRF = 5%; rM = 7%; RPM = 2%, and beta = 1.3 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. If inflation increases by 2% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. Assume now that there is no change in inflation, but risk aversion increases by 1%. What is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. If inflation increases by 2% and risk aversion increases by 1%, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.As per Capital Asset Pricing Model (CAPM) : Re=Rf+(Rm-Rf)βwhere, Re= Required rate of returnRf= Risk free rate of return = 0%Rm = Market return or Expected return on market = 3.3%β = Beta of the stock = 1.24Now, Re= Rf + Rm - Rf βRe= 0 + 3.3 - 0 ×1.24Re= 4.092% To calculate the abnormal return we will use the formula: = E(R) - Re= 3% - 4.092% = -1.092% or - 0.01092 How did you get the 4.092%?
- Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 16%. a. Calculate the market risk premium. b. Given the previous data, calculate the required return on asset A having a beta of 0.4 and asset B having a beta of 1.8.Compute the expected rate of return on investment i given the followinginformation: Rf = 8%; E(RM) = 14%; βi = 1.0.b. Recalculate the required rate of return assuming βi is 1.8.25. a. Compute the expected rate of return on investment i given the followinginformation: the market risk premium is 5%; Rf = 6%; βi = 1.2.b. Compute E(RM)a. Compute the expected rate of return on investment i given the following information: the market risk premium is 5%; Rf = 6%; βi = 1.2. b. Compute E(RM).
- Suppose rRF = 4%, rM = 9%, and bi = 1.5. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. 1. Now assume that rRF remains at 4%, but rM increases to 10%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place. The new ri will be %. 2. Now assume that rRF remains at 4%, but rM falls to 8%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place. The new ri will be %.Given are three FOREX quotes as follows: $1/€ $0.5/SF SF2.5 / € What will be arbitrage profit if you start the process with €1,000?Assume that the risk free rate is currently 3% and that the market retunr is currently 11%. Calculate the market risk premium Give the previous datea, calculate the required retun on asset A having a beta of 0.3 and asset B having a beta of 1.5.
- If the beta of Asset A is 2.2, the risk free rate is 2.5%, and the expected return on Asset A is 8%, what is the expected return on the market (Note: you want to use CAPM)? Group of answer choices 7.28% 5.00% 8.00% 16.80%Suppose rRF = 6%, rM = 12%, and bi = 1.1. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. % 1. Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri? rM will remain the same and ri will increase by 1 percentage point. rM will increase by 1 percentage point and ri will remain the same. Both rM and ri will decrease by 1 percentage point. Both rM and ri will remain the same. Both rM and ri will increase by 1 percentage point. 2. Now suppose rRF decreases to 5%. The slope of the SML remains constant. How would this affect rM and ri? rM will remain the same and ri will decrease by 1 percentage point. Both rM and ri will increase by 1 percentage point. Both rM and ri will remain the same. Both rM and ri will decrease by 1 percentage point. rM will decrease by 1 percentage point and ri will remain the same. 1. Now assume that rRF remains at 6%, but rM increases to 13%.…Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has a beta, of 1.10. (could be done on word document or excel). Assume that as a result of recent economic events, inflationary expectations have declined by 3%, lowering RF and RM to 5% and 9%, respectively. Draw the new SML on the axes in part a, and calculate and show the new required return for asset A. Assume that as a result of recent events, investors have become more risk averse, causing the market return to rise by 2%, to be14%. Ignoring the shift in part c, draw the new SML on the same set of axes that you used before, and calculate and show the new required return for asset A. From the previous changes, what conclusions can be drawn about the impact of (1) decreased inflationary expectations and (2) increased risk aversion on the required returns of risky assets?