In Simpleland, there are only two risky assets in the market, A and B. The information...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
In Simpleland, there are only two risky assets in the market, A and B. The information and CAPM estimates of A and B are shown in the following table: A 100 Million 0.09 Market Capitalisation ($) Variance (²) Covariance between A and B Expected Return on Market Risk free rate 0.2 20% 10% a) What is the expected return of A and B under CAPM? [5] B 400 Million 0.01 The manager believes that in the near future, B will outperform A by 5% with uncertainty measured in variance 0.0005. He has also assigned the error of estimating the above CAPM model in terms of variance to be 0.01, i.e. T = 0.01. In Simpleland, there are only two risky assets in the market, A and B. The information and CAPM estimates of A and B are shown in the following table: A 100 Million 0.09 Market Capitalisation ($) Variance (²) Covariance between A and B Expected Return on Market Risk free rate 0.2 20% 10% a) What is the expected return of A and B under CAPM? [5] B 400 Million 0.01 The manager believes that in the near future, B will outperform A by 5% with uncertainty measured in variance 0.0005. He has also assigned the error of estimating the above CAPM model in terms of variance to be 0.01, i.e. T = 0.01.
Expert Answer:
Answer rating: 100% (QA)
To calculate the expected return of assets A and B under the CAPM we use the fol... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Create a stack using a linked list. For this implementation you will create 2 functions push and pop. Then your program will input any number of letters and then pop them off showing them in reverse...
-
basketball coaches criticize in the newspaper for not trying out every combination of players. If the team roster of 16 players in every player play every position how many five player combinations...
-
A 1000-ft-long 2-ft-diameter concrete pipe (sharp-edge entrance) is used to convey 60F water from Reservoir A to B. At the end of the pipe, a diffuser with an exit diameter of 3.5 ft is installed to...
-
What is the Antebellum Interregional growth hypothesis?
-
(a) If the marginal cost for x units of a good is MC =x2+9 (dollars per unit) and if the fixed cost is $300, what is the total cost function of the good? (b)What is the total cost of producing 4...
-
Keith Nobrega is trying to determine the amount to set aside so that he will have enough money on hand in two years to overhaul the engine on his vintage used car. While there is some uncertainty...
-
Describe the content of an OFR statement in UK financial statements and discuss whether it should be made mandatory, more prescriptive and audited.
-
At the beginning of the school year, Priscilla Wescott decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December...
-
The period of time required to purchase supplies and services and convert them back into cash
-
In the employee scheduling example, suppose that the company can force employees to work one day of overtime each week on the day immediately following this five-day shift. For example, an employee...
-
Mr. Sharma is planning for his retirement that is due at the age of 60. His current income is Rs. 100000 per annum and his current age is 32 years. How much he should invest in new pension scheme...
-
Q1.Write a short note on the evolution of financial transactions. And a short note on the organization of the financial system.
-
A regulation basketball has a 38 cm di- ameter and may be approximated as a thin spherical shell. How long will it take a basketball starting from rest to roll without slipping 3.6 m down an incline...
-
The center of mass of a pitched baseball of radius 5.78 cm moves at 37.8 m/s. The ball spins about an axis through its center of mass with an angular speed of 154 rad/s. Treat the baseball as if it...
-
Coke's most recent dividend was $1. Dividends are expected to grow by 15% for the next two years which would lead to dividends of $1.15 at time 1 and $1.32 at time 2. After that, dividends are...
-
When a discounted cash flow (DCF) model is used to estimate the intrinsic value of a company, many decisions are made. What are two weaknesses of the DCF model? Provide two examples of an attribute,...
-
c. How could social change and action perspectives be applied to this family's situation? Specifically, how might a social worker working with Roberto Sala zar use advocacy or social action to...
-
The test statistic in the NeymanPearson Lemma and the likelihood ratio test statistic K are intimately related. Consider testing H 0 : = 0 versus H a : = a , and let * denote the test statistic...
-
You are currently borrowing $10 million at six-month LIBOR + 50 basis points. The LIBOR is at 4 percent. You expect to borrow this amount for five years but are worried that LIBOR will rise in the...
-
Four years ago. a Swiss firm entered into a currency swap of $100 million for 150 million Swiss francs, with a maturity of seven years. The swap fixed rates are 8 percent in dollars and 4 percent in...
-
You are a Swiss investor who has $10 million in short-term dollar deposits. You are worried that the dollar will drop relative to the Swiss franc in the next month. You care only about the Swiss...
-
What are the key elements of working capital?
-
From the extracts of data provided below for Easy Events, calculate the ratios the following ratios and explain what they reveal. a) ROCE b) Asset utilisation c) Net profit percentage d) Gross profit...
-
Name the three working capital policies a business can follow.
Study smarter with the SolutionInn App