Question: A single mispriced asset has an alpha = 4.0%, a beta = 1.0 and unsystematic risk (variance) of 16.0%. The market risk premium

A single mispriced asset has an alpha α = 4.0%, a beta β = 1.0 and unsystematic risk (variance) of 16.0%. The market risk premium is 5.0% and the market's Sharpe Ratio is 0.5.In constructing an optimal allocation between the mispriced asset and the market.



What proportion of your investment would you place in the mispriced asset?

Step by Step Solution

★★★★★

3.47 Rating (170 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

To determine the proportion of your investment to allocate to the mispriced asset you can use the co... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

You recently graduated from college, and your job search led you to East Coast Yachts. Because you felt the companys business was seaworthy, you accepted a job offer. The first day on the job, while...

Q:

You recently graduated from college, and your job search led you to East Coast Yachts. Since you felt the companys business was seaworthy, you accepted a job offer. The first day on the job, while...

Q:

KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...

Q:

A single mispriced asset has an alpha = 4.0%, a beta = 1.0 and unsystematic risk (variance) of 16.0%. The market risk premium is 5.0% and the markets Sharpe Ratio is 0.5. In constructing an optimal...

Q:

A single mispriced asset has an alpha = 4.0%, a beta = 1.0 and unsystematic risk (variance) of 16.0%. The market risk premium is 5.0% and the markets Sharpe Ratio is 0.5. In constructing an optimal...

Q:

A single mispriced asset has an alpha = 4.0%, a beta = 1.0 and unsystematic risk (variance) of 16.0%. The market risk premium is 5.0% and the markets Sharpe Ratio is 0.5. In constructing an optimal...

Q:

A single mispriced asset has an alpha a = 3 . 0 % , a beta = 1 , and unsystematic risk 2 = 9 % . The market risk premium is 5 . 0 % and the market's standard deviation is 0 . 1 . What is the...

Q:

please help me ASAP! A single mispriced asset has an alpha =3.0%, a beta =1.5, and unsystematic risk 2=9%. The market risk premium is 5.0% and the market's standard deviation is 0.1 . What is the...

Q:

A single mispriced asset has an alpha a = 3 . 0 % , a beta = 1 , and unsystematic risk 2 = 9 % . The market risk premium is 5 . 0 % and the market's standard deviation is 0 . 1 . What is the...

Q:

A single mispriced asset has an alpha a = 3 . 0 % , a beta = 1 , and unsystematic risk 2 = 9 % . The market risk premium is 5 . 0 % and the market's standard deviation is 0 . 1 . What is the...

Q:

Identify the following sample designs: a. The names of 200 patrons of a casino are drawn from a list of visitors for the last month, and a questionnaire is administered to them. b. A radio talk show...

Q:

A grocery store manager decided to feature cases of soft drinks in the front of the store. He wanted to make certain that shoppers would not miss the sale, so he decided to have the cases stacked in...

Q:

One fifth of the sum of two angles is 24" and half their difference is 14". Find the two angles.

Q:

One gram-mole of methyl chloride vapor is contained in a vessel at 100C and 10atm. (a) Use the ideal gas equation of state to estimate the system volume. (b) Suppose the actual volume of the vessel...

Q:

The components of a vertical circuit board, 150 mm on a side, dissipate 5 W. The back surface is well insulated and the front surface is exposed to quiescent air at 27C. Assuming a uniform surface...

Q:

Bill purchased a vacation lot he saw advertised on television for an $800 down and monthly payments of $55. When he visited the lot he had purchased, he found it was not something he wanted to own....

Q:

For the process described by the exact transfer function (a) Find an approximate transfer function of second-order-plus-time-delay form that describes this process.(b) Using Simulink, plot the...

Q:

A compound (C6H10) contains a five-membered ring. When Br2 adds to it, two diastereomeric dibromides are formed. Suggest reasonable structures for the compound and the two dibromides.

Q:

Simplify the expression.(b13*a35)-4Write your answer without using negative exponents.Assume that all variables are positive real numbers.

Q:

Nestle Group, a multinational food products firm based in Switzerland, recently issued its financial statements. The auditor's opinion attached to the financial statements stated the following: ''In...

Q:

Recent years have witnessed some of the most significant accounting scandals in history. For each scandal listed in Exhibit 6.17, identify how balance sheet quality and earnings quality were...

Q:

Whirlpool manufactures and sells home appliances under various brand names. IBM develops and manufactures computer hardware and offers related technology services. Target operates a chain of general...

Q:

Are unions greedy because they expect workers to receive more than they are worth, or is management greedy because it takes excessive salaries and gives too large a share of the profits to the owners?

Q:

What pay system do you prefer? Why is this your preference?

Q:

What is your opinion of using promotions from within as a recruiting source?