Answered: 6. Assume that both portfolios A and B…

6. Assume that both portfolios A and B are well diversified, that E(rA) = 12%, and E(rB) = 9%. If the economy has only one factor, and BA = 1.2, whereas Bg = .8, what must be the risk-free rate? %3D

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

See similar textbooks

Related questions

Q: a) Suppose the risk-free rate is `X'% and the expected rate of return on the market portfolio is…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: a. What is the expected return on a portfolio that is equally invested in the two assets? b. If a…

A: Information Provided: Stock beta = 1.35 Expected return = 16% Risk-free asset return = 4.8%…

Q: Equity has a beta of 0.9 and an expected return of 9%. A risk free asset currently earns 2%.(a) What…

A: Since you have posted a question with multiple sub-parts, we will solve the first three subparts for…

Q: Consider a world with only two risky assets, A and B, and a risk-free asset. The two risky assets…

A: The capital Asset Pricing Model(CAPM) is the model that shows the relationship between the…

Q: When P12 =+1, the standard deviation of a two-security portfolio P is equal to the weighted average…

A: Part B. The portfolios along the (EF) efficient frontier are those that deliver the highest returns…

Q: Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and…

A: Overpriced securities are those securities whose required rate of return is more than the expected…

Q: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: Suppose that there are two independent factors, F1 and F2. The risk-free rate is 3%, and all stocks…

Q: If the risk free rate is 6 %, the expected return on the market portfolio is 12% and the beta of…

A: The Capital Asset Pricing Model (CAPM) is the model which shows the relationship between the…

Q: Consider a one factor economy. (1) There are two well-diversified portfolios A and B. Their expected…

A: (Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a…

A: Calculation of expected returns and beta values: Given information: Market return is 13%, Risk free…

Q: You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 36%.…

A: Given, Expected return = 17% Standard deviation = 36% T-bill rate = 6%

Q: 4. Suppose portfolio P's expected return in 12%, its volatility (standard deviation) is 20%, and the…

A: Solution:- Sharpe Ratio measures the excess return over risk free return, per unit of risk taken ie.…

Q: An Equity has a beta of 0.9 and an expected return of 9%. A risk free asset currently earns 2%. i.)…

Q: 3. The risk free rate is 2% and the expected return and standard deviation on the market is 12% and…

A: Risk free Return (Rf ) = 2% Return of Market (Rm) = 12% Standard Deviation of market = 20%

Q: You are told that the expected return of the market portfolio is 10%, and its standard deviation is…

A: Efficient portfolio is define as portfolio that provides the best possible return at a known risk…

Q: Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%. The…

A: Formulas: Expected return on A = risk free rate + Beta on M1 x risk premium f1 + Beta on M2 x risk…

Q: The risk-free rate and the expected market rate of return are 6% and 16%, respectively. According to…

A: In the above question we need to calculate the Expected rate of return of stock where, Risk free…

Q: Assume that the following one-factor macroeconomic model describes the expected return for…

A: Arbitrage is a sale and purchase of assets at the same time to exploit a profit from the differences…

Q: Using the SML [LO4] Asset W has an expected return of 11.8 percent and a beta of 1.15. If the…

Q: 2. An investor currently holds the market portfolio, which has an expected return of 10% and…

A: An efficient portfolio can be defined as that portfolio which provides the maximum return to the…

Q: An Equity has a beta of 0.9 and an expected return of 9%. A risk free asset currently earns 2%.…

A: Beta= 0.9 Expected return= 9% Risk free rate of asset= 2%

Q: assume that the risk free interest rate is 3%, the market rate of return is 7% and the beta for the…

A: As per CAPM, Required rate of return = Risk free Rate + Beta * (Market Return - Risk free Rate)

Q: 6. Consider an optimal risky portfolio with expected return of 8% and standard deviation of 26% and…

A: The slope of the best feasible Capital Allocation Line (CAL) of the optimal portfolio as follows:…

Q: Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium on the…

A: CAPM is the relationship between systematic risk and returns for assets. This concept is used for…

Q: Suppose the risk-free rate is 1% and the expected rate of return on the market portfolio is 10%. In…

A: Given, Risk-free Rate = 1% Expected Rate of Return on Market Portfolio = 10% Expected Rate of return…

Q: The Treasury bill rate is 6%, and the expected return on the market portfolio is 12%. According che…

A: Given information : Treasury bill rate = 6% Expected return on market portfolio = 12% And, CAPM…

Q: Consider the following data for a one-factor economy. All portfolios are assumed to be well…

A: Before we get into the question, it's imperative to note that beta of a portfolio comprising of two…

Q: Suppose that you know that the following well-diversified portfolios are fairly priced in a…

A: Investment in the security market contains a high degree of risk. The investor is attached to the…

Q: You are told that the expected return of the market portfolio is 10%, and its standard deviation is…

A: Market Porfolio Return(Rm)=10% Market Standard Deviation (SDm) =10% Efficient Portfolio Return (Re)=…

Q: need help

A: Under one factor model:E(R) = Rf + Beta x Z where E(R) = expected return of a security, Rf = risk…

Q: 5. Suppose A is the market portfolio with expected return m = 5% and standard deviation of return m…

A: The following information is provided in the question: Expected return of A=5% Standard deviation…

Q: Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5%, and…

A: In the given we need to analyze whether the security X is Under-valued or over-valued. For this we…

Q: 9. This problem will give you some practice calculating measures of prospective portfolio…

A: A statistical measure that provides information concerning the value that is dispersed from the mean…

Q: Assume that Bon Temps has a beta coefficient of 1.2, that the risk-free rate is 3%, and that the…

A: Following details are given in the question: Risk free rate = 3% Beta coefficient = 1.2 Required…

Q: Consider the two risky investments below: Scenario Asset 1 Asset 2 Probability Returns 0.1…

A: Part 2 of the questio is : What is the difference between systematic and non-systematic risk. There…

Q: Assume that both portfolios A and B are well diversified, that E(rA) = 16%, and E(rB) = 14%. If the…

A: according to capm model: r = rf+β×rm-rfwhere,rf= risk free raterm= market return

Q: In an economy where the Capital Asset Pricing Model(CAPM) holds, the riskfree interest rate is 1%.…

A: Risk free rate = 1% Expected Return of Market = 16% Standard Deviation = 20% Porfolio Return = 25%…

Q: The return on market portfolio is 12% and the risk-free is 6%. The beta coefficient is 1.3.Using the…

A: Market return (MR) = 12% Risk free rate (RF) = 6% Beta (B) = 1.3

Q: We believe that the single factor model can predict any individual asset’s realized rate of return…

A: Here, A B β 1.2 0.8 E(r) 0.1 0.08

Q: Assume that both portfolios A and B are well diversified, that E(rA) = 12%, and E(rB) = 9%. If the…

A: E(ra) Expected Return of security A = 12% E(rb) Expected Return of security B = 9% Beta of security…

Q: The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According…

A: We need to compute the expected rate of return on security X according to Capital Asset pricing…

Q: Within the context of the capital asset pricing model (CAPM), assume:∙ Expected return on the market…

A: Capital asset pricing model (CAPM) represents the relationship between the risk and return of an…

Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Hello

Can you show to i can solve for the risk free rate, possibly on excel

6. Assume that both portfolios A and B are well diversified, that E(ra) = 12%, and E(rg) = 9%. If the
economy has only one factor, and BA = 1.2, whereas BB = .8, what must be the risk-free rate?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Assume that both portfolios A and B are well diversified, that E(rA) = 12%, and E(rB) = 9%. If the economy has only one factor, and βA = 1.2, whereas βB = .8, what must be the risk-free rate?
Assume that both portfolios A and B are well diversified, that E(rA) = 16%, and E(rB) = 14%. If the economy has only one factor, and βA = 1.0, whereas βB = 0.8, what must be the risk-free rate? (Do not round intermediate calculations.)
Assume both portfolios A and B are well diversified, that E(rA) = 12.6% and E(rB) = 13.6%. If the economy has only one factor, and βA = 1 while βB = 1.2, what must be the risk-free rate? (Do not round intermediate calculations. Round your answer to 1 decimal place.)
Assume that both portfolios A and B are well diversified, that E(rA) = 21%, and E(rB) = 16%. If the economy has only one factor, and βA = 1.4, whereas βB = 1.0, what must be the risk-free rate? (Do not round intermediate calculations. Round your answer to two decimal places.)
Assume that both portfolios A and B are well diversified, that E(rA) = 20% and E(rB) = 15%. If the economy has only one factor, and BetaA = 1.3, whereas BetaB = 0.8, what must be the risk-free rate (write as percentage, rounded to two decimal places)?
Suppose the risk-free return is 2% and the return on the market is 10%. The beta of a managed portfolio is 1.5, and the average realized return is 13%. According to the CAPM, Jensen’s alpha of the managed portfolio is: A) –1% B) 0% C) 1% D) 2% E) none of the above
Consider the one-factor APT. Assume that two portfolios, A and B, are well diversified. The betas of portfolios A and B are 1.0 and 1.5, respectively. The expected returns on portfolios A and B are 19% and 24%, respectively. Assuming no arbitrage opportunities exist, the risk-free rate of return must be 14% 9% 16.5% 4%
Suppose that optimal risky portfolio has an expected return of 16% and a varianceof 0.04. The risk-free rate is 4%.a) Find the slope of Capital Market Line (Optimal Capital Allocation Line)?b) What is the expected return of a portfolio C, which is on Capital Market Line and has astandard deviation of 0.08?
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 4%. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0? How does expected return vary with beta?
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 6%. a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0?
Consider the multifactor model APT with three factors. Portfolio A has a beta of 0.8 on factor 1, a beta of 1.1 on factor 2, and a beta of 1.25 on factor 3. The risk premiums on the factor 1, factor 2, and factor 3 are 3%, 5%, and 2%, respectively. The risk-free rate of return is 3%. The expected return on portfolio A is __________ if no arbitrage opportunities exist. A. 23.0% B. 16.5% C. 13.4% D. 13.5%
Assume the APT equation for portfolios A and B with the following system of equations: E[rA] = λ0 + (λ1)3 + (λ2)0.2 = 11.0 E[rB] = λ0 + (λ1)2 + (λ2)1 = 13.0 Assume the following: . The risk free rate is λ0 = Rf = 5 . The expected return on the market portfolio is RM = 10 . Expected returns are consistent with the CAPM. . (hint: note that λ1 = E[RA] − Rf and λ2 = E[RB] − Rf ). Answer the following: (a) What are λ1 and λ2? (b) What is the CAPM β associated with the pure portfolio associated with factor 1? (c) What is the CAPM β associated with the pure portfolio associated with factor 2?