The variance of the A, B, and C securities. Introduction: The variance is used to measure the spread and denoted by The value of standard deviation is square root of the variance. The variance of the portfolio calculates the return fluctuations in market with respect of the other stocks with standard deviation.

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Answer 1

Question

Chapter 10, Problem 8PS

A

Summary Introduction

To calculate: The variance of the A, B, and C securities.

Introduction: The variance is used to measure the spread and denoted byThe value of standard deviation is square root of the variance. The variance of the portfolio calculates the return fluctuations in market with respect of the other stocks with standard deviation.

B

Summary Introduction

To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

C

Summary Introduction

To select: The possibility of the arbitrage opportunity in this market.

Introduction : The arbitrage opportunity is a condition of the market to make profit due to the fluctuation of the market. This stage provides less loss in the market. Like purchasing an asset in lower price and sell it at high price in the market.

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Assume that security returns are generated by the single-index model, Ri = αi + βiRM + ei where Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security βi E(Ri) σ(ei) A 1.4 14 % 23 % B 1.6 16 14 C 1.8 18 17 a. If σM = 22%, calculate the variance of returns of securities A, B, and C. b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)

Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(βA) to beta of B(βB).

Assume that using the Security Market Line the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on the market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B (bB).

Answer 2

Question

Chapter 10, Problem 8PS

A

Summary Introduction

To calculate: The variance of the A, B, and C securities.

Introduction: The variance is used to measure the spread and denoted byThe value of standard deviation is square root of the variance. The variance of the portfolio calculates the return fluctuations in market with respect of the other stocks with standard deviation.

B

Summary Introduction

To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

C

Summary Introduction

To select: The possibility of the arbitrage opportunity in this market.

Introduction : The arbitrage opportunity is a condition of the market to make profit due to the fluctuation of the market. This stage provides less loss in the market. Like purchasing an asset in lower price and sell it at high price in the market.

Expert Solution & Answer

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Answer 3

Question

Chapter 10, Problem 8PS

A

Summary Introduction

To calculate: The variance of the A, B, and C securities.

Introduction: The variance is used to measure the spread and denoted byThe value of standard deviation is square root of the variance. The variance of the portfolio calculates the return fluctuations in market with respect of the other stocks with standard deviation.

B

Summary Introduction

To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

C

Summary Introduction

To select: The possibility of the arbitrage opportunity in this market.

Introduction : The arbitrage opportunity is a condition of the market to make profit due to the fluctuation of the market. This stage provides less loss in the market. Like purchasing an asset in lower price and sell it at high price in the market.

Expert Solution & Answer

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Answer 4

Question

Chapter 10, Problem 8PS

A

Summary Introduction

To calculate: The variance of the A, B, and C securities.

Introduction: The variance is used to measure the spread and denoted byThe value of standard deviation is square root of the variance. The variance of the portfolio calculates the return fluctuations in market with respect of the other stocks with standard deviation.

B

Summary Introduction

To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

C

Summary Introduction

To select: The possibility of the arbitrage opportunity in this market.

Introduction : The arbitrage opportunity is a condition of the market to make profit due to the fluctuation of the market. This stage provides less loss in the market. Like purchasing an asset in lower price and sell it at high price in the market.

Expert Solution & Answer

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Answer 5

Chapter 10, Problem 8PS

A

Summary Introduction

To calculate: The variance of the A, B, and C securities.

Introduction: The variance is used to measure the spread and denoted byThe value of standard deviation is square root of the variance. The variance of the portfolio calculates the return fluctuations in market with respect of the other stocks with standard deviation.

B

Summary Introduction

To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

C

Summary Introduction

To select: The possibility of the arbitrage opportunity in this market.

Introduction : The arbitrage opportunity is a condition of the market to make profit due to the fluctuation of the market. This stage provides less loss in the market. Like purchasing an asset in lower price and sell it at high price in the market.

Answer 6

Chapter 10, Problem 8PS

A

Summary Introduction

To calculate: The variance of the A, B, and C securities.

Introduction: The variance is used to measure the spread and denoted byThe value of standard deviation is square root of the variance. The variance of the portfolio calculates the return fluctuations in market with respect of the other stocks with standard deviation.

Answer 7

Chapter 10, Problem 8PS

A

Summary Introduction

To calculate: The variance of the A, B, and C securities.

Introduction: The variance is used to measure the spread and denoted byThe value of standard deviation is square root of the variance. The variance of the portfolio calculates the return fluctuations in market with respect of the other stocks with standard deviation.

Answer 8

B

Summary Introduction

To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

Answer 9

B

Summary Introduction

To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

Answer 10

C

Summary Introduction

To select: The possibility of the arbitrage opportunity in this market.

Introduction : The arbitrage opportunity is a condition of the market to make profit due to the fluctuation of the market. This stage provides less loss in the market. Like purchasing an asset in lower price and sell it at high price in the market.

Answer 11

C

Summary Introduction

To select: The possibility of the arbitrage opportunity in this market.

Introduction : The arbitrage opportunity is a condition of the market to make profit due to the fluctuation of the market. This stage provides less loss in the market. Like purchasing an asset in lower price and sell it at high price in the market.

Answer 12

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Answer 14

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Answer 15

Ch. 10 - Prob. 1PS Ch. 10 - Prob. 2PS Ch. 10 - Prob. 3PS Ch. 10 - Prob. 4PS Ch. 10 - Prob. 5PS Ch. 10 - Prob. 6PS Ch. 10 - Prob. 7PS Ch. 10 - Prob. 8PS Ch. 10 - Prob. 9PS Ch. 10 - Prob. 10PS

Solution Summary: The author explains how the variance of the portfolio calculates the return fluctuations in market with respect to the other stocks with standard deviation.

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To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

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Chapter 10 Solutions

Solution Summary: The author explains how the variance of the portfolio calculates the return fluctuations in market with respect to the other stocks with standard deviation.

Concept explainers

Videos

To calculate: The mean and variance of return of A and B security. Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.

Want to see the full answer?

Chapter 10 Solutions

To calculate: The mean and variance of return of A and B security.

Introduction: The mean of the security is equal to the stock value of particular security. The value of variance of the security is defined as the fluctuations of the returns and compared with the other securities.