5. Suppose that you currently have $250,000 invested in a portfolio with an expected return of 12% and a volatility of 10%. At the same time the efficient (tangent) portfolio has an expected return of 17% and a volatility of 12%. The risk- free rate of interest is 5%. The Sharpe ratio for your portfolio is closest to: A) 1.2. B) 0.6. C) 1.0. D) 0.7.

5. Suppose that you currently have $250,000 invested in a portfolio with an expected return of 12% and a volatility of 10%. At the same time the efficient (tangent) portfolio has an expected return of 17% and a volatility of 12%. The risk- free rate of interest is 5%. The Sharpe ratio for your portfolio is closest to: A) 1.2. B) 0.6. C) 1.0. D) 0.7.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 15PROB

See similar textbooks

Similar questions

Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 7.0%, and that the market risk premium is 5%. What is the required rate of return on the firms stock?
Suppose the expected return on the tangent portfolio is 10% and its volatility is 40%.The risk-free rate is 2%.(a) What is the equation of the Capital Market Line (CML)?(b) What is the standard deviation of an efficient portfolio whose expected return of8%? How would you allocate $1,000 to achieve this position
The treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to the capital asset pricing model: A. What is the risk premium on the market? B. What is the required return on an investment with a beta of 1.4? C. If an investment with a beta of 0.8 offers an expected return of 9.0% does it have positive or negative NPV? D. If the market expects a return of 11.0% from stock X, what is its beta?
1. You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 2% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 15% and 85%, respectively. X has an expected rate of return of 15%, and Y has an expected rate of return of 30%. The dollar values of your position in X would be _________, if you decide to hold a complete portfolio that has an expected return of 24%. 2. You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 2% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 15% and 85%, respectively. X has an expected rate of return of 15%, and Y has an expected rate of return of 30%. The dollar values of your position in Y would be _________, if you decide to hold a complete portfolio that has an expected return of 24%. 3. You are…
You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has a return volatility of 25%, and Y has a return volatility of 30%. The correlation between X and Y is -0.2. If you decide to hold a complete portfolio that has a return volatility of 15%, how much should you invest in the Treasury bills? $1,000 $687 $130 $220
4. You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 13% with a standard deviation of 25%. You manage an active port- folio with expected return 18% and standard deviation 28%. The risk-free rate is 8%. a) Calculate and interpret the return of the P* portfolio b) Draw the CML and your funds’ CAL on an expected return–standard deviation diagram. c) Explain in one short paragraph the advantage/disadvantage of your P* over the passive fund. d) Your client ponders whether to switch the 70%of his wealth to the passive portfolio. Explain to your client the disadvantage/advantage of the switch.
Currently the risk-free rate equals 5% and the expected return on the market portfolio equals 11%. An investment analyst provides you with the following information: Stock A Beta 1.33 Expected Return 12% Stock B Beta 0.7 Expected Return 10% (a) Calculate the reward-to-risk ratios of stock A, stock B and in market equilibrium. Are stock A and stock B overvalued, undervalued or fairly valued? Briefly explain. [within 150 words] (b) You want a portfolio with the same risk as the market. Calculate the weights of stock A and B respectively. (please show me steps and round the final answer to 2 decimal places, thanks)
A portfolio has a beta of 1.2 and an actual return of 14.1 percent. The risk-free rate is 3.5 percent and the market risk premium is 7.4 percent. What is the value of Jensen's alpha?
You currently have ¢100,000 invested in the shares of Barko Ltd that has an expected return of 15% and a volatility of 10%. Suppose the risk-free rate is 3%, and the market portfolio has an expected return of 11% and a volatility of 5%. 1. What combination of the risk free rate and the market portfolio will give you the same return as your investment in the shares of Barko Ltd? What is the risk of this portfolio? 2. What combination of the risk free rate and the market portfolio offers the same risk as your investment in the shares of Barko Ltd? What is the return on this portfolio?
Suppose you have $20,000 available to invest and the risk-free rate, as well as your borrowing rate, is 3%, and the expected return on the risky portfolio is 12%. The standard deviation of the risky portfolio is 18%. If you construct a complete portfolio with an expected return of 9%, the standard deviation of your portfolio is _______%.
The Treasury bill rate is 4.9%, and the expected return on the market portfolio is 11.1%. Use the capital asset pricing model. What is the risk premium on the market? (Enter your answer as a percent rounded to 1 decimal place.) What is the required return on an investment with a beta of 1.2? (Enter your answer as a percent rounded to 2 decimal places.) If an investment with a beta of 0.46 offers an expected return of 8.7%, does it have a positive NPV? If the market expects a return of 12.2% from stock X, what is its beta? (Round your answer to 2 decimal places.)
CAPM: The Treasury bill rate is 5%, and the expected return on the market portfolio is 12%. On the basis of Capital Asset Pricing Model: What is the risk premium of the market? What is the risk premium of an investment with a beta of 1.5? What is the required return of an investment with a beta of 1.5? If an investment has a beta of .8 and offers an expected return of 11% (think of it as its IRR), does it have a positive NPV?