vvk.1 Portfilio A has an expected return of 12% and a beta of1.2. Portfolio B has an expected return of 5% and a beta of 0. suppose there exists another portfolio C that is well diversifed and has a beta of 0.6 and expected return of 8%. If arbitrage is possible, what would be the return?
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vvk.1
Portfilio A has an expected return of 12% and a beta of1.2. Portfolio B has an expected return of 5% and a beta of 0. suppose there exists another portfolio C that is well diversifed and has a beta of 0.6 and expected return of 8%. If arbitrage is possible, what would be the return?
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- 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?Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of −0.3, and a beta coefficient of −1.5. Security B has an expected return of 12%, a standard deviation of returns of 10%, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?
- APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?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?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 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 aboveSuppose 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%
- “The expected return on an investment with a beta of 1.5 is 150% as high as theexpected return on the market portfolio.” Is this statement true or false? Pleaseexplain briefly.Using CAPM to determine the expected rate of return for risky assets, consider the following example stocks, assuming that you have already compute the betas Stock Beta A 0.70 B 1.00 C 1.15 D 1.40 E -0.30 Assume that we expect the economy’s RFR to be 5 percent (0.05) and the expected return on the market portfolio (E(RM)) to be 9 percent (0.09), 1, what would this imply? With these inputs, what would the be the following required rate of returns for these five stocks, show the formula for each in your calculations.The market index return is 1.3% and its standard deviation is 17%. The risk free rate is 3%. Portfolio Q generates an annual return of 14%, and has a beta of 1.35, and a standard deviation of 23%. Consider a complete portfolio that consists of the portfolio Q and the risk free asset. If we require the standard deviation of the complete portfolio to be the same as the market portfolio, what is the Sharpe ratio of the complete portfolio?
