Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A
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Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The beta of A is .7, while that of Bis 1.4. The T-bill rate is currently 5%, whereas the expected rate of return of the S&P 500 index is 13%. The standard deviation of portfolio A is 12% annually, that of B is 31 %, and that of the S&P 500 index is 18%.
a. Calculate the alphas for the two portfolios.
b. If you could invest only in T-bills and one of these portfolios, which would you chose?
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Investments
ISBN: 9781259271939
9th Canadian Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus, Lorne Switzer, Maureen Stapleton, Dana Boyko, Christine Panasian
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