You currently own $100 000 worth of Walmart stock. Suppose that Walmart has an expected return of
Question:
You currently own $100 000 worth of Walmart stock. Suppose that Walmart has an expected return of 21% and a volatility of 27%. The market portfolio has an expected return of 12% and a volatility of 17.6%. The risk-free rate is 5%.
a) Assuming the CAPM assumptions hold, what alternative investment has the lowest possible volatility while having the same expected return as Walmart? The portfolio is long x% market and short x% risk-free asset. Find the x percentages and round your answer to the nearest integer, express your answer as a percentage.
b) The volatility of the portfolio in a) is? Round your answer to one decimal, and express your answer as a percentage.
c) Assuming the CAPM assumptions hold, what alternative investment has the highest expected return while having the same volatility as Walmart? The portfolio is long x% market and short x% risk-free asset- Fins the x percentages and round your answer to the nearest integer, express your answer as a percentage.
d) The expected return of the portfolio in c) is? Round your answer to one decimal, and express your answer as a percentage.
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston