Suppose you are the manager of an investment fund in a two-parameter economy. Given the following forecast:
Question:
E(Rm) = .16, σ(Rm) = .20, Rf = .08
(a) Would you recommend investment in a security with E(Rj) = ,12and COV (Rj, Rm) = .01?
(b) Suppose that in the next period security R1 has earned only 5% over the preceding period. How would you explain this ex post return?
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Related Book For
Financial Theory and Corporate Policy
ISBN: 978-0321127211
4th edition
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri
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