3. Two assets have expected returns and standard deviations as follows: Asset Standard Deviation A B...
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3. Two assets have expected returns and standard deviations as follows: Asset Standard Deviation A B Expected Return 11 16 These assets are perfectly negatively correlated. 8 10 What is the minimum standard deviation that can be obtained by combining assets A and B in a portfolio? Prove in words or mathematically. 4. The following data have been developed for Ling Corp. State 1 Probability 0.10 2 0.30 3 0.40 4 0.20 Market Return Company Return -0.12 -0.24 0.03 0.00 0.10 0.15 0.20 0.50 Assume that the risk-free rate is 3%. Calculate: (a) the expected market return based on the above probability distribution; (b) the variance of the market return; (c) the expected return for Ling Corp.; (d) the covariance of the return for Ling Corp. with the return on the market. (e) What is the required rate of return for Ling Corp. using the security market line (CAPM)? How does this compare with its expected return? 3. Two assets have expected returns and standard deviations as follows: Asset Standard Deviation A B Expected Return 11 16 These assets are perfectly negatively correlated. 8 10 What is the minimum standard deviation that can be obtained by combining assets A and B in a portfolio? Prove in words or mathematically. 4. The following data have been developed for Ling Corp. State 1 Probability 0.10 2 0.30 3 0.40 4 0.20 Market Return Company Return -0.12 -0.24 0.03 0.00 0.10 0.15 0.20 0.50 Assume that the risk-free rate is 3%. Calculate: (a) the expected market return based on the above probability distribution; (b) the variance of the market return; (c) the expected return for Ling Corp.; (d) the covariance of the return for Ling Corp. with the return on the market. (e) What is the required rate of return for Ling Corp. using the security market line (CAPM)? How does this compare with its expected return?
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Related Book For
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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