EBK ESSENTIALS OF INVESTMENTS
10th Edition
ISBN: 8220102800267
Author: Bodie
Publisher: YUZU
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Textbook Question
Chapter 6, Problem 14PS
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rf. The characteristics of two of the stocks are as follows:
Stock Expected Return Standard Deviation A 8 40% B 13 60
Correlation = −1
Could the equilibrium rfbe greater than 10%? (Hint: Can a particular stock portfolio be substituted for the risk-free asset?) (LO 6-3)
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Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows:
Stock
Expected Return
Standard Deviation
A
8%
55%
B
4%
45%
Correlation = −1
Required:
a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a “synthetic” risk-free asset?) (Round your answer to 2 decimal places.)
b. Could the equilibrium rƒ be greater than rate of return?
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, Rf. The characteristics of two of the stocks are as follows:
Stock
Expected ret
Standard dev
A
8%
40%
B
13%
60%
Correlation = -1
Could the equilibrium risk-free rate be greater than 10%?
(HINT: Can a particular stock portfolio be substituted for the risk-free rate?)
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, r4. The characteristics of
two of the stocks are as follows:
Correlation=
Rate of return
Stock
Expected
Return
7%
14%
Required:
a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a
"synthetic" risk-free asset?) (Round your answer to 2 decimal places.)
O Yes
O No
Standard
Deviation
30%
70%
b. Could the equilibrium rybe greater than rate of return?
Chapter 6 Solutions
EBK ESSENTIALS OF INVESTMENTS
Ch. 6 - Prob. 1PSCh. 6 - When adding a risky asset to a portfolio of many...Ch. 6 - A portfolio’s expected return is 12%, its standard...Ch. 6 - An investor ponders various allocations to the...Ch. 6 - The standard deviation of the market-index...Ch. 6 - Suppose that the returns on the stock fund...Ch. 6 - Use the rate-of-return data for the stock and bond...Ch. 6 - Prob. 8PSCh. 6 - Prob. 9PSCh. 6 - Prob. 10PS
Ch. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Suppose that many stocks are traded in the market...Ch. 6 - You can find a spreadsheet containing annual...Ch. 6 - Assume expected returns and standard deviations...Ch. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - A project has a 0.7 chance of doubling your...Ch. 6 - Investors expect the market rate of return this...Ch. 6 - The following figure shows plots of monthly rates...Ch. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 25CCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Abigail Grace has a $900,000 fully diversified...Ch. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 1WMCh. 6 - Following the procedures in the previous question,...Ch. 6 - Prob. 3WMCh. 6 - Prob. 4WM
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