If we assume that investor can borrow at risk-free interest rate, then the efficient frontier is 1) AB 2) MV-B 3) Rf-T-A 4) Rf-T-B 5) Rf-T-L E(Tp)0.10.080.05RfBorow at Rf andinvest at TOA0.020.04LB0.06OpIf we assume that investor can borrow at risk-free interest rate, thenthe efficient frontier is

Efficient frontier is a graphical representation of the trade-off between risk and return for a…

Answered: If we assume that investor can borrow…

If we assume that investor can borrow at risk-free interest rate, then the efficient frontier is 1) AB 2) MV-B 3) Rf-T-A 4) Rf-T-B 5) Rf-T-L

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 14MC

See similar textbooks

Related questions

Q: A project has the following cash in and out flows in its first year: Income generated:…

A: Income Generated = R100,000Cost of sales = R30,000Depreciation = R10,000Tax Rate = 27%

Q: Finley wants to select the best group of independent projects with a fixed capital budget of…

A: Value added by project is net present value and can be found as the difference between present value…

Q: All computations and Formula must be done and shown in detail A stock repurchase carries…

A: Stock repurchase, also known as share buyback, refers to when a company buys its own outstanding…

Q: At year-end 2019, total assets for Arrington Inc. were $1.5 million and accounts payable were…

A: As per acccounting equation, total assets must be equal to total liabilities and equity after all…

Q: A Chevrolet Sonic Hatchback costs $14,640.00. With a 9% down payment, you can have an amortized…

A: Initial cost of car = $14,640Down payment = initial cost of car * 9% = 14,640 * 0.09 = $…

Q: An investor was afraid that he would become like King Lear in his retirement and beg hospitality…

A: Interest rate is the earning on the investment made by the investor for a specified tenure at a…

Q: You have the following data for your company. Market Value of Equity: $520 Book Value of Debt:…

A: The WACC of a company refers to the return that the company provides on average to its stakeholders…

Q: The Board of Directors of Fizzer Co. recently approved the allocation of up to Php60 million of…

A: Net present value (NPV), Internal rate of return (IRR) & Profitability index (PI) are the…

Q: Consider the following information on a portfolio of three stocks: State of Economy Probability of…

A: Here,State of EconomyProbablityReturn- Stock AReturn- Stock BReturn- Stock…

Q: Which of the following multiples are well-constructed for valuing either the enterprise or equity…

A: Enterprise value is a comprehensive measure that represents the total value of a company taking into…

Q: Hello, I need help with finance questions from book Fundamentals of corporate finance ( 11th…

A: Cash flow to shareholders refers to the cash that is paid by the company to its outstanding…

Q: Please do not copy and paste what has been already posted. Show full working. Company A can borrow…

A: During swap arrangement, the swap dealer receives the interest as per the preference of borrowing…

Q: Rewrite the fraction in the sentence below as a percentage. At a certain wedding, (11)/(20) of the…

A: Fractions and percentages are two of the different ways to present the data.For example, a 1/10…

Q: arket value analysis) The balance sheet for Larry Underwood Motors shows a book value of…

A: Data given: Book value of stockholder's equity=$1,343,000 Net income=$539,000 Earnings per…

Q: Your cousin is currently 12 years old. She will be going to college in 6 years. Your aunt and uncle…

A: The concept of time value of money will be used and applied here.As per the concept of time value of…

Q: Consider the following simplified financial statements for the Fire Corporation (assuming no income…

A: The problem requires the calculation of external financing needed. The external financing needed is…

Q: Kim is shopping for a car. She will finance $12,000 through a lender. The table to the right shows…

A: A loan refers to a contract where money is borrowed by one party on the promise of future repayment…

Q: Brandon invested in a project that has the following quarterly cash flows over the next 2 years. If…

A: The EAR refers to the return that the investment provides after considering the effects of…

Q: A firm has net income of $500,000 and sales of $18,000,000. Its interest expense is $180,000 and the…

A: Net Income = ni = $500,000Sales = s = $18,000,000Interest Expenses = i = 180,000Tax rate = t = 30%

Q: WUPHF.com, a Scranton-based technology firm, is considering a project th will overhaul its IT…

A: With equity (E), debt(D), cost of equity, Pretax cost of debt, tax rate and debt to equity ratio…

Q: The real risk-free rate is 3 percent. Inflation is expected to be 3.5 percent this year, 4.5…

A: Risk free rate = rf = 3%Inflation in Year 1 = i1 = 3.5%Inflation in Year 2 = i2 = 4.5%Inflation in…

Q: onsider the following table, which gives a security analyst’s expected return on two stocks and the…

A: Beta of stock A =difference of aggressive stock return /difference of market return…

Q: Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently…

A: Here,Current Quoted Price is 125-100Face Value of Future is $100,000Interest Rate will go down in…

Q: Treasury notes and bonds. Use the information in the following table: Assume a $100,000 par value.…

A: Yield to maturity is the interest rate that makes the present worth of the cashflows receivable from…

Q: At the end of 2020, Wildhorse Company is conducting an impairment test and needs to develop a fair…

A: To calculate the fair value of the machinery with cashflow using the present value techniques , the…

Q: ou assign the highest anticipated sales and price and the lowest anticipated costs to a project, you…

A: In doing analysis of projects there is uncertainty regarding sales and cost so due to this different…

Q: Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects…

A: IRR is also known as internal rate of return. It is a capital budgeting techniques which help in…

Q: How much interest (to the nearest dollar) would be saved on the following loan if the condominium…

A: Condominium price = $257,000Down payment = 30%Interest rate = 3.05%

Q: a) You just returned from some extensive traveling throughout the Americas. You started your trip…

A: Currency exchange rate refers to the value at which one currency can be exchanged for another. It…

Q: Break-even EBIT (with and without taxes). Alpha Company is looking at two different capital…

A: In Order to calculate EBIT or earning before interest and tax we need to understand the capital…

Q: We are evaluating a project that costs $2,190,000, has a 8-year life, and has no salvage value.…

A: Project cost = $2,190,000Useful life = 8 yearsDepreciation = 2190000 / 8 = $273,750Sales = 91,200…

Q: Which method of depreciation will result in a higher net income during the first year the asset is…

A: Depreciation is an accounting method used to allocate the cost of an asset over its useful life. It…

Q: Identify the incorrect statements with regard to the Canada Pension Plan (CPP).

A: CPP stands for the Canada Pension Plan. It is a social security program that provides income support…

Q: CASE 1 If Richland Crane maintains the same yuan price and in effect sells for fewer dollars, the…

A: We are going to solve this question using the logic below:Sales volume from year 2 onwards =…

Q: Emerson, Inc. is evaluating whether to replace a machine. The current machine was purchased 3 years…

A: NPV is also known as Net Present Value. It is a capital budgeting techniques which help in decision…

Q: . What are her expected returns and the risk from her investment in the three assets? How do they…

A: Expected return refers probability adjusted weighted average return under all scenarios.Standard…

Q: Your mother has asked you to help her with an investment. She has $6,000 to invest today for 3…

A: A CD refers to an instrument of savings used to earn interest on a deposit for a fixed period. It is…

Q: A government that controls all business paces and faces of production is inducing Oa. None of the…

A: Economy is the system or structure of production, distribution and consumption of goods and services…

Q: Firms HL and LL are identical except for their financial leverage ratios and the interest rates they…

A: The ability of a corporation to employ capital to make a profit is measured by its return on…

Q: Beasley Industries' sales are expected to increase from $5 million in 2017 to $6 million in 2018, or…

A: A company needs additional funds to finance the increase in assets required to support the increase…

Q: Would you advise a 15-year loan to a buyer who could afford the additional payment over a 30-year…

A: Loans are used for buying home or car by the common man but there are interest to be paid on that…

Q: A fem raises capital by selling $30,000 worth of debt with flotation costs equal to 1% of its par…

A: A firm can raise debt through two main means – debt and equity.Debt refers to borrowings made by a…

Q: Even though most corporate bonds in the United States make coupon payments semiannually, bonds…

A: A bond is a kind of debt security issued by the government and private companies for raising funds…

Q: Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital…

A: Bellinger Industries is considering two projects , and based capital budgeting we need to do…

Q: An investment will pay $600 at the end of each of the next 2 years, $700 at the end of Year 3, and…

A: Net Present Value - It is the difference between the present value of cash outflow and present value…

Q: Stock Pricing: A firm expects to pay a $3 dividend next year. This dividend is expected to grow at…

A: The intrinsic value of a stock is the present value of future cash stream. Ultimately as the time…

Q: Procter and Gamble (PG) paid an annual dividend of $ 2.82 in 2021. You expect PG to increase its…

A: In the given case, we have provided the annual dividend paid per share and the expected growth rate…

Q: All computations must be done and shown in detail a) You currently own 600 shares of JKL, Inc. JKL…

A: Total number of shares owned=600All equity firm has a number of shares=75,000Earnings before…

Q: Delcimer Mining Corportation is considering starting up a new lithium mine. It would cost the…

A: Capital budgeting provides modern methods like internal rate of return to determine the required…

Q: If you need to take out a $10,000 student loan 2 years before graduating, which loan option will…

A: There are three loans, one is a subsidized, second is a federal loan & third is a private…

Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

If we assume that investor can borrow at risk-free interest rate, then the efficient frontier is

1) AB

2) MV-B

3) Rf-T-A

4) Rf-T-B

5) Rf-T-L

E(Tp)
0.1
0.08
0.05
Rf
Borow at Rf and
invest at T
OA
0.02
0.04
L
B
0.06
Op
If we assume that investor can borrow at risk-free interest rate, then
the efficient frontier is

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: Introduction

VIEW

Step 2: Analysis

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

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

Explain why y0u agree 0r disagree with the f0ll0wing statements. The answer sh0uld n0t be m0re than three sentences . Treasury b0nds are riskier than c0rp0rate b0nds. All 0ther things held c0nstant; the future value 0f an 0rdinary annuity is always having a higher future value than annuity due. All 0ther things held c0nstant, the price 0r interest rate risk 0f sh0rt-term b0nd is always l0wer than l0ng-term b0nd.
Explain why y0u disagree 0r agree with the f0ll0wing statements. The answer sh0uld n0t be m0re than 3 sentences Treasury b0nds are riskier than c0rp0rate b0nds. All 0ther things held c0nstant; the future value 0f an 0rdinary annuity is always having a higher future value than annuity due. All 0ther things held c0nstant, the price 0r interest rate risk 0f sh0rt-term b0nd is always l0wer than l0ng-term b0nd.
What does WRF = -0.50 mean? Group of answer choices The investor can borrow money at the risk-free rate. The investor can lend money at the current market rate. The investor can borrow money at the current market rate. The investor can borrow money at the prime rate of interest. The investor can lend money at the prime rate of interest.
Explain why y0u disagree 0r agree with the f0ll0wings statements. The answer sh0u-ld n0t be m0re than three sentences All 0ther things held c0nstant; the future value of an 0rdinary annuity is always having a higher future value than annuity due. All 0ther things held c0nstant, the price 0r interest rate risk of sh0rt-term b0nd is always l0wer than l0ng-term b0nd. Treasury b0nds are riskier than c0rp0rate b0nds.
Suppose you observed the following situation: Security Beta Expected Return Cooley, Inc. 1.6 19% Moyer Co. 1.2 16% What would the risk-free rate have to be if these securities are correctly priced?
Suppose you observe the following situation: Security Beta Expected Return Peat Company 1.70 13.60 Re - Peat Company 0.85 10.80 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk - free rate?
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)
Based on Table 3, what is the liquidity risk premium? Table 3 Investment 1 2 3 4 5 O 1.25% O 1.50% O 0.25% O 1.12% Maturity 2 2 7 8 8 Liquidity High Low Low High Low Default Risk Low Low Low Low High Interest Rate 1.00% 1.25% 2.25% 2.93% 4.43%
Suppose the CAPM holds. You know that the average investor has a degree risk aversion of 3.3. The current risk free rate is 0.012, the inflation is estimated 0.017, and the volatility of the market is 0.17. What is the market risk premium? [*.000]
Example of CAPM Equation: Case Risk free Rate (Rf) Market return (Km) Beta (b) Required Return A 5% 8% 1.30 ? B 8% 13% 0.90 ? C 10% 15% -0.20% ? D ? 12% 1.0 12% E 6% ? 0.60 9% F 5% 16% ? 10% Required: Using CAPM equation, compute the missing value (?)
Consider the following information (Assume that Security M and Security N are in the same financial market): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security has more total risk? Group of answer choices Security M Security N Equal
Suppose the real rate is 1%, the risk-free rate is 4%, maturity risk premium is 2%, inflation premium is 3%, the default risk on similar debt is 3%, and the liquidity premium is 2%. What is the nominal interest rate on this venture’s debt capital? A. 11% B. 12% C. 13% D. 14% E. 15% the answer is 11% could u please show working to how they go the answer