Answered: What must be the beta of a portfolio…

Business

Finance

What must be the beta of a portfolio with E(rP) = 18%, if rf= 6% and E(rM) = 14%?

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 7P

See similar textbooks

Related questions

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: what is the Sharpe ratio of this portfolio?

A: Information Provided: Return = 25.30% Standard deviation = 31% T-bills = 5%

Q: Suppose MegaChip has a beta of 1.3, whereas Littlewing stock has a beta of .7. If the risk-free…

A: Given the following information: Beta of MegaChip: 1.3 Beta of Littlewing: 0.7 Risk free rate: 4%…

Q: Find the Expected Return on the Market Portfolio given that the Cost of Equity is 14% and Risk-Free…

A: A model that represents the relationship of the required return and beta of a particular asset is…

Q: Asset W has an expected return of 21.3 percent and a beta of 2.05. If the risk-free rate is 3.5…

A: Following details are given to us in the question regarding Asset W : Expected Return (ER) = 21.3…

Q: The UIB company desires to construct a portfolio with 15% expected return. The portfolio is to…

A: The beta of a stock is the measure of the systematic risk associated with investing in the stock as…

Q: What must be the beta of a portfolio with E(rP) = 20%, if rf = 5% and E(rM) 15%? (Round your answer…

A: In the given question we need to calculate beta of portfolio given following details: E(rP) = 20% rf…

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: The market index return is 1.3% and its standard deviation is 17%. The risk free rate is 3%.…

A: Sharp Ratio = ( Return of Portfolio - Risk free rate)/ Portfolio Standard deviation…

Q: Given the market expected return of 10%, standard deviation of market return of 15% and a risk free…

A: In the given question we need to compute the expected return of an efficient portfolio from the…

Q: Assuming that the CAPM approach is appropriate, compute the required rate of return for each of the…

A: Given: Risk free rate = 0.07 Market rate = 0.13 Different betas:

Q: If E(rX)=0.12 and E(rY)=0.08, what would be the expected rate of return of a portfolio made of 30%…

A: Given the following information: Expected return from investment X = 0.12 Expected return from…

Q: What is the expected return for asset X if it has a beta of 1.5, the expected market return is 15…

A: The expected return for the asset can be calculated with the help of CAPM equation

Q: A portfolio has an average return of 14.4 percent, a standard deviation of 18.5 percent, and a beta…

A: The Sharpe ratio: The Sharpe ratio is one of the most commonly used measures to assess the…

Q: Your portfolio has a beta of 1.24, a standard deviation of 14.3 percent, and an expected return of…

A: Portfolio beta = 1.24 Standard deviation = 14.3% Expected return = 12.50% Market return = 10.7% Risk…

Q: If the expected rate of return on AZNG is 12.72, its beta is 1.09 and the market risk premium is 8%,…

A: Given risk free rate = 6.00%beta =1.090Return of stock =12.72%Market risk premium = 8.00%

Q: Consider Securities X and Y with the following estimates: E(RX) = 5% σX= 10% E(RY) = 15% σY = 25%.…

A: A portfolio is a collection of different assets held together for investment purposes. It may…

Q: what is the slope of the best feasible CAL?

A: Sharpe ratio is the measure of risk with return adjusted on a portfolio. A higher portfolio is…

Q: Suppose there are two stocks, one with expected return of 14% with a beta of 1 and the other with…

A: The expected rate of return is the return that an investor expects the company to generate out of…

Q: Suppose the assumption behind that the CAPM hold. The risk free rate is 2% and the expected return…

Q: Consider a portfolio exhibiting an expected return of 6% in an economy where the riskless interest…

A: Given, Expected return = 6% Risk less interest rate = 1% Expected return on market portfolio = 10%…

Q: Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a…

A: We are given following details : Expected return on market = 18% Beta = 1.2 Expected return on stock…

Q: You still have $14,000 invested in TGT and $8,000 invested in JCP. If the beta of TGT is 0.65 and…

A: Portfolio refers to basket of different financial assets in which investment is made by single…

Q: What must be the beta of a portfolio with E(rP) = 20%, if rf = 5% and E(rM) = 15%?

A: In the given question we need to compute the Beta of the portfolio.

Q: Suppose the expected return for the market portfolio and risk-free rate are 13 percent and 3 percent…

A: Treynor ratio = (Expected return - Risk free rate) / BetaTreynor ratio of the market = (Expected…

Q: A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7…

A: An expected return is defined as the profit / loss, where an investors used to anticipate on their…

Q: A portfolio has a correlation of 0.40 with the overall market and produces a Sharpe Ratio of 0.2. If…

A: There are different measures which are used for the estimation of portfolio performance. One such…

Q: Find the Risk Free Rate given the cost of equity 12%, the Expected Return on Market Portfolio is 16%…

A: Given: Expected return = 12% Market rate = 16% Beta = 0.6

Q: the required return on portfolio is 18% risk free rate is 6% and the market return is 14% calculate…

A: Given: Rp = 18% (required return on portfolio) Rf = 6% (risk free rate of portfolio) Rm = 14%…

Q: What is the expected return of a portfolio that has $8,000 invested in S and $2,000 invested in T?…

A: Return of Stock S = (0.25 * 30%) + ( 0.5 * 15% )+ (0.25 * -10%) = 7.5 + 7.5 - 2.5 = 12.5 Return of…

Q: If the risk-free rate is 7 percent, the expected return on the market is 10 percent, and the…

A: Given that;Risk free rate is 7%Expected return on the market is 10%Expected return on the security…

Q: Given an optimal risky portfolio with expected return of 12% and standard deviation of 23% and a…

A: Slope can be calculated by subtracting risk free rate from expected return and dividing it by…

Q: You have a portfolio which consists of 75% of stock 1 (o^2 = 0.16) and 25% of stock 2 (o^2 = 0.09).…

A: Return on the stock is based on the risk free rate, market return and the risk associated with the…

Q: If the risk-free rate of return, PRF İS 4% and the market return, rM is expected to be 12%, what is…

A: Given Details are : rRF = 4% rM = 12% Beta = 2.5 From these details we need to compute Required rate…

Q: The risk-free rate is 2%, the market risk premium is 8.00%, and portfolio A has a beta of 2. What is…

A: Given: Risk free rate = 2% Market risk premium = 8% Beta of portfolio = 2 Computation of required…

Q: Consider two types of assets: market portfolio (M) and stock A. The expected return is 8% and…

A: Given: Market rate = 8% Risk free rate = 2% Standard deviation of market portfolio = 15% Standard…

Q: Find the Risk-Free Rate given the Expected Return on Stock Y is 20 %, the Expected Return on Market…

A: Expected return = Risk free rate + beta * (market return - risk free rate )

Q: Find the Risk Free Rate given the cost of equity 12%, the Expected Return on Market Portfolio is 16%…

A: Expected return = Risk free rate + beta * (market return - risk free rate )

Q: The Treasury bill rate is 6%, and the expected return on the market portfolio is 14%. According to…

A: (a) Risk premium on the market = Expected market return - risk free return = 14%…

Q: HNL has an expected return of 18% and KOA has an expected return of 22% f you create a portfolio…

A: The formula used is shown:

Q: Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found…

A: Calculation of ratio of beta of A to beta of B: Answer: The ratio of beta A to beta B is 0.4286

Q: Your portfolio has a beta of 1.73, a standard deviation of 29 percent, and an expected return of…

A: Treynor ratio = Portfolio Return - Risk Free ReturnPortfolio Beta

Q: What is the expected risk-free rate of return if Asset X, with a beta of 1.5, has an expected return…

A: Required return = risk free rate + beta * market retrun - beta* risk free rate

Q: According the picture, Find: a) the expected return and standard deviation on this portfolio. b)…

A: Calculation of Expected Return, Standard Deviation and Expected Return using Portfolio Beta: Excel…

Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

What must be the beta of a portfolio with E_(rP) = 18%, if r_f= 6% and E_(rM) = 14%?

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

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 2 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

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?
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?
The risk-free rate is 2%, the market risk premium is 8.00%, and portfolio A has a beta of 2. What is the required rate of return on this portfolio?
Suppose the risk free return is 6%. The beta of a managed portfolio is 1.5, the alpha is 3%, and the average return is 18%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as ___ % ?
The risk premium of the market portfolio is 9 %, the risk free rate is 5 % and the beta estimate for AELZ is β = 1.3. What is the risk premium? What is the expected rate of return?
A portfolio has an average return of 14.4 percent, a standard deviation of 18.5 percent, and a beta of 1.96. The risk-free rate is 2.6 percent. What is the Sharpe ratio?
the required return on portfolio is 18% risk free rate is 6% and the market return is 14% calculate the beta of the portfolio
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?
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?
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 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
According to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0 is:a. Between rM and rf .b. The risk-free rate, rf .c. β(rM − rf).d. The expected return on the market, rM.