1. Assume that the following assets are correctly priced according to the security market line. Derive...
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1. Assume that the following assets are correctly priced according to the security market line. Derive the security market line. What is the expected return on an asset with a beta of 2? R₁ = 6% B₁=0.5 R₂ = 12% B₂ = 1.5 2. Assume the security market line given below. Assume that analysts have estimated the beta on two stocks as follows: B, = 0.5 and B, 2. What must the expected return on the two securities be in order for them to be a good purchase? R₁ = 0.04 +0.083; 3. Assume that over some period, a CAPM was estimated. The results are shown below. Assume that over the same period, two mutual funds had the following results: Fund A Actual return = 10% Beta = 0.8 Fund B Actual return = 15% Beta = 1.2 What can be said about the fund performance? R = 0.06+0.193, 4. Consider the CAPM line shown below. What is the excess return of the market over the risk-free rate? What is the risk-free rate? R = 0.04 +0.103, 5. Write the CAPM shown in Problem 4 in price form. 6. Show that the standard CAPM should hold even if short sales are not allowed. 7. Assume that an asset exists with R3 = 15% and B3 = 1.2. Further assume the security market line discussed in Problem 1. Design the arbitrage opportunity. 8. If the following assets are correctly priced on the security market line, what is the return of the market portfolio? What is the risk-free rate? R₁ = 9.40% B₁=0.80 R₂13.40% B₂ = 1.30 9. Given the security market line R = 0.07 +0.09B, What must be the returns for two stocks, assuming their ẞs are 1.2 and 0.9? 1. Assume that the following assets are correctly priced according to the security market line. Derive the security market line. What is the expected return on an asset with a beta of 2? R₁ = 6% B₁=0.5 R₂ = 12% B₂ = 1.5 2. Assume the security market line given below. Assume that analysts have estimated the beta on two stocks as follows: B, = 0.5 and B, 2. What must the expected return on the two securities be in order for them to be a good purchase? R₁ = 0.04 +0.083; 3. Assume that over some period, a CAPM was estimated. The results are shown below. Assume that over the same period, two mutual funds had the following results: Fund A Actual return = 10% Beta = 0.8 Fund B Actual return = 15% Beta = 1.2 What can be said about the fund performance? R = 0.06+0.193, 4. Consider the CAPM line shown below. What is the excess return of the market over the risk-free rate? What is the risk-free rate? R = 0.04 +0.103, 5. Write the CAPM shown in Problem 4 in price form. 6. Show that the standard CAPM should hold even if short sales are not allowed. 7. Assume that an asset exists with R3 = 15% and B3 = 1.2. Further assume the security market line discussed in Problem 1. Design the arbitrage opportunity. 8. If the following assets are correctly priced on the security market line, what is the return of the market portfolio? What is the risk-free rate? R₁ = 9.40% B₁=0.80 R₂13.40% B₂ = 1.30 9. Given the security market line R = 0.07 +0.09B, What must be the returns for two stocks, assuming their ẞs are 1.2 and 0.9?
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Related Book For
Modern Portfolio Theory and Investment Analysis
ISBN: 978-1118469941
9th edition
Authors: Edwin Elton, Martin Gruber, Stephen Brown, William Goetzmann
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