1. Portfolio Theory and CAPM: The stock market comprises two stocks, A and B, and a...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. Portfolio Theory and CAPM: The stock market comprises two stocks, A and B, and a risk-free asset. The return on the risk-free asset is Rf 3%. The table below gives the expectations, standard deviations, and covariances for the two stocks' returns. (15 points) RA RB Expectation 0.16 0.12 Standard Deviation 0.25 0.20 Covariance with RA 0.0625 0.03 = Covariance with RB 0.03 0.04 (a) What are the weights of stocks A and B in the tangency portfolio? (5 points) (b) Suppose that CAPM holds, calculate the CAPM beta of stock A and B. (3 points) (c) Calculate the Sharpe Ratio of stock A, B and, the market portfolio. (2 points) (d) Suppose Meredith has the following utility function U = E[Rp] - 2Var[R₂] where Rp is her portfolio return. If she has $1,000 for investment, how much money does she have in stock A, B, and the risk-free asset? (5 points) 1. Portfolio Theory and CAPM: The stock market comprises two stocks, A and B, and a risk-free asset. The return on the risk-free asset is Rf 3%. The table below gives the expectations, standard deviations, and covariances for the two stocks' returns. (15 points) RA RB Expectation 0.16 0.12 Standard Deviation 0.25 0.20 Covariance with RA 0.0625 0.03 = Covariance with RB 0.03 0.04 (a) What are the weights of stocks A and B in the tangency portfolio? (5 points) (b) Suppose that CAPM holds, calculate the CAPM beta of stock A and B. (3 points) (c) Calculate the Sharpe Ratio of stock A, B and, the market portfolio. (2 points) (d) Suppose Meredith has the following utility function U = E[Rp] - 2Var[R₂] where Rp is her portfolio return. If she has $1,000 for investment, how much money does she have in stock A, B, and the risk-free asset? (5 points)
Expert Answer:
Related Book For
Statistics for Business Decision Making and Analysis
ISBN: 978-0321890269
2nd edition
Authors: Robert Stine, Dean Foster
Posted Date:
Students also viewed these accounting questions
-
Two stocks A and B are known to be related in that both are in the same industry. The probability that stock A will go up in price tomorrow is 0.20, and the probability that both stocks A and B will...
-
Suppose that there is one risk free asset with return r f and one risky asset with normally distributed return N (, 2 ). Show that the CARA utility u(r) = -e-Ar gives the same optimal allocation of...
-
Jimmy has the following utility function for hot dogs: U(H) = 10H H2, with MUH = 10 2H a) Plot the utility and marginal utility functions on two separate graphs. b) Suppose that Jimmy is allowed to...
-
Why do you imagine Xcel agreed to invest $100 million in this risky experiment?
-
(Multiple choice) 1. Using a subtly different Internet host name to mimic another business is known as: a. Spoofing. b. Sniffing. c. Web-visit hijacking. d. Falsified identity. 2. Passwords and...
-
Figure depicts the adaptation of a sample control matrix from a PricewaterhouseCoopers guide for Section 404 of the Sarbanes-Oxley Act of 2004.27 We have added some data from the Suprina Company...
-
\(\sqrt{396}\) Simplify the square root by expressing it in lowest terms.
-
Hayley and Associates is a public accounting firm that offers three types of services'audit, tax, and consulting. The firm is concerned about the profitability of its consulting business and is...
-
. Z Co. adopts a plan of complete liquidation and makes the following pro rata distributions to its shareholders (assume all are individuals and each has a $2,000 basis in the Z Co. stock): A Cash...
-
Given the following production plan, use a (a) Chase production strategy (b) Level production strategy to compute the monthly production, ending inventory / (backlog) and workforce levels. A worker...
-
Tablas de valores de tiempoPreguntaUn analista financiero est revisando los estados financierosdel ao fiscal ms reciente de una empresa. Los datos relevantes semuestran a continuacin. 1 answer
-
Explain the importance of continual improvement. Compare and contrast the three types. What are the primary sub-types of practices within each? Conduct online research to find at least ONE real...
-
Present a 6-8 minutes persuasive speech persuading the audience about a social problem that our society needs to address. Use the problem-cause-solution organization to construct your argument and...
-
13. A 5.0-kg box slides down on the surface on a ramp (incline) that rises at 37 above the horizontal. If the acceleration of the box is 7.2 m/s, what is the force of friction on the box? (The x-...
-
Compare and contrast action research and process consultation and appreciative inquiry.
-
Provide support to a colleague by Present strategies and resources for the identified areas of need for the teacher to use with the whole group, small groups, and individual students in their...
-
23. Abandonment Decisions Trask Products, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $8.1 million for the next 10 years. The required return...
-
Phosgene, COCl2, is a toxic gas used in the manufacture of urethane plastics. The gas dissociates at high temperature. At 400oC, the equilibrium constant Kc is 8.05 104. Find the percentage of...
-
1. On average, retailers expect to sell the same amount on the first weekend and the second weekend. 2. If retail sales are exceptionally low on the first weekend, retailers expect lower than average...
-
Which of the following processes would you expect to be under control, and which would you expect not to be under control? Explain briefly why or why not. (a) Daily sales at each checkout line in a...
-
1. Probability of B given A 2. Probability of Bc given A 3. Identifies independent events 4. Identifies dependent events 5. Bayes Rule 6. Multiplication Rule (a) P (A and B) = P (A) P (B A) (b) P (A...
-
Using $\mathrm{S}_{\text {base } 3 \phi}=100 \mathrm{kVA}$ and $\mathrm{V}_{\text {baseLL }}=600$ volts.
-
When evaluating the reasonableness of the accounting estimates as provided by the management of the client, the auditor shall perform the following except: (a) The auditor should evaluate, based on...
-
In which of the following situations the auditor is likely to audit accounting estimates: (a) Allowance for doubtful accounts (b) Reserve for obsolete inventory (c) Changes in the useful life of...
Study smarter with the SolutionInn App