Finance Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-bills provide a risk-free return of 5%.a. What would be the expected returm and beta of portfolios constructed from these two assets with welghts in the S&P 500 of (1) 0; (iI)0.25; () 0.50; (iv) 0.75; (V) 1.0? (Leave no cells blank - be certain to enter "O" wherever required. Do not round Intermedlatecalculations. Enter the value of Expected return as a percentage rounded to 2 declmal places and value of Beta rounded to 2decimal places.)Expected ReturnBeta(i)(i)(ii)(v)(v)0.250.500.751.0b. How does expected return vary with beta? (Do not round intermediate calculations.)% for a one unit increase in beta.byThe expected returnNext >7 of 10< RrevMacBook Pro

Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-blls provide a risk-free return of 5%. a. What would be the expected return and beta of portfolios constructed from these two assets with welghts in the S&P 500 of (1) 0; (1) 0.25; (IlI) 0.50; (Iv) 0.75; (v) 1.0? (Leave no cells blank - be certain to enter "O" wherever required. Do not round Intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) Expected Return Beta (i) % % % % (ii) 0.25 (ii) 0.50 (iv) 0.75 (v) 1.0 b. How does expected return vary with beta? (Do not round intermediate calculations.) % for a one unit increase in beta. by The expected return 33339

Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-blls provide a risk-free return of 5%. a. What would be the expected return and beta of portfolios constructed from these two assets with welghts in the S&P 500 of (1) 0; (1) 0.25; (IlI) 0.50; (Iv) 0.75; (v) 1.0? (Leave no cells blank - be certain to enter "O" wherever required. Do not round Intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) Expected Return Beta (i) % % % % (ii) 0.25 (ii) 0.50 (iv) 0.75 (v) 1.0 b. How does expected return vary with beta? (Do not round intermediate calculations.) % for a one unit increase in beta. by The expected return 33339

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 14P

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An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
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?
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 14% and T-bills provide a risk-free return of 5%. 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? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) b. How does expected return vary with beta? (Do not round intermediate calculations.)
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 12% and T-bills provide a risk-free return of 3% a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of Expected Return Beta (i) 0 (ii) 0.25 (iii) 0.50 (iv) 0.75 (v) 1.0 (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places.) b. How does expected return vary with beta? (Do not round intermediate calculations.) Fill in the bolded part The expected return (increases/decrease) by ( %) for a one unit increase in beta.
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 12% and T-bills provide a risk- free return of 5% a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (1) 0; (2) 0.25; (3) 0.50; (4) 0.75; (5) 1.0 ? Note: Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the value of Expected return as a percentage rounded to 2 decimal places and value of Beta rounded to 2 decimal places. b. How does the expected return vary with beta? Note: Do not round intermediate calculations.
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??) =???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)Question 2. Foreign exchange marketsStatoil, the national…
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??) = ???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)
Suppose we have five (5) shares with a beta factor and expected return, each, as in the table below. The annual return on the risk-free security (Rf) is 5% and the annual return on the market portfolio (RM) is 11%. Share Beta factor (b) Expected performance A 0,40 0,13 B 1,00 0,11 C 1,37 0,09 D 1,75 0,13 E -0,20 0,02 Calculate the required returns of stocks based on the asset valuation model (CAPM). Compare the required and expected returns of each stock and find out which stocks are overvalued or undervalued. Present the expected returns on a chart showing what expected returns are above or below the Securities Market Line.
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If the risk free rate is 4.4%, the expected return on the market portfolio (i.e., Rm)( is 11.6%, and the beta of Stock B is 0.9 , what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round your answer rounded to one decimal place and record without a percent sign). Your Answer: If the risk free rate is 1.2%, the market risk premium (i.e., Rm - Rf) is 13.5%, and the beta of Stock B is 1.9 , what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round your answer rounded to one decimal place and record without a percent sign). Your Answer: