Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A

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Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The beta of A is .7, while that of B is 1.4. The T-bill rate is currently 5%, whereas the expected rate of return of the S&P 500 index is 13%. The standard deviation of portfolio A is 12% annually, that of B is 31%, and that of the S&P 500 index is 18%.
a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.
b. If instead you could invest only in T-bills and one of these portfolios, which would you choose?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Related Book For  answer-question

Investments

ISBN: 9780073530703

9th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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