Question: Assuming that CAPM is established, answer the questions in the following figure, except that CML represents the Capital Market Line, and rf=0.05 the risk free

Assuming that CAPM is established, answer the questions in the following figure, except that CML represents the Capital Market Line, and rf=0.05  the risk free interest rate, respectively.

EO) CML 0.15 M0.10 0.06 0.30

(1) Find the covariance between portfolios A and M. (2) If the portfolio created by investing x in portfolio A and y in portfolio M drawn on the graph is called B, find the weights x and y of the portfolio (however, x + y = 1) The beta of B is -0.5. (3) Calculate the non-systematic risk of portfolio B. (4) Assume that there are no risk-free assets. Find a zero-beta portfolio to replace risk-free assets. Find a zero-beta portfolio of A and B and plot it on a plane.

E(r) CML 0.15 0.10 0,05 0.30

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Solution Assuming portfolio B is market portfolto Then its be ta ... View full answer

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 Accounting Questions!

Assume that there are no surprises, with all economic agents and the central bank having full information about shocks that are hitting the economy. Suppose that the central bank adopts a nominal GDP...

Answer the questions in Exercise 4 for a regular pentagon. (a) Determine the number of distinct ways one can color the vertices of an equilateral triangle using the colors red and white, if the...

Answer the questions in assignment 8 using your state law governing arson. Data from assignment 8 A person who knowingly sets fire to, burns, causes to be burned, or by use of any explosive, damages...

During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company...

During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the...

If a function f is continuous at a and then the curve y = f(x) has a vertical tangent line at a and the equation of the tangent line is x = a. If a is an endpoint of a domain, then the appropriate...

Choose from the methods listed below to answer the following questions. a. Net present value b. Net present cost c. Annualized cost d. Break-even e. Internal rate of return f. Cost-benefit analysis...

Assuming the country is open to international capital flows, which of the following combinations of monetary and exchange-rate policies are viable? Explain your reasoning. (a) A domestic interest...

The following series of payments will repay a present sum of $5000 at an 8% interest rate. Using single payment factors, what present sum is equivalent to this series of payments at a 10%interest...

Consider these transactions: (a) Galvao Restaurant accepted a Visa card in payment of a $200 lunch bill. The bank charges a 3% fee. What entry should Galvao make? (b) Stone Company sold its accounts...

Figure shows a 240-QAM signal constellation, which may be viewed as an extended form of QAM cross constellation. (a) Identify the portion of Figure that is a QAM square constellation,. (b) Build on...

For a project representative working on behalf of the owner or design firm ( not builder ) , which of these responsibilities applies?

Variants 1 dy/dx=x 2 + 2 Variants 1 dy -x y dy =1ly 4. dy -7x 1. =x +2 dx 2. =e* dx dt dx y" +10y" + 25 y' = 0 7. 6. y" - 2y' +5y=0 (2x +3y)dx = xdy 5. %3D y" - 2y'-3y= 4e* 10. 9. y" +9y=5cos(2t) 8....

How would your calculated value for the molecular weight of your unknown been affected (high, low, no effect) if a small quantity of the unknown stuck to the metal stirring rod and failed to dissolve...

Draw a synchronous counter that will output a 10-kHz signal when a 1-MHz clock is applied ?

Complete this vocabulary exercise relating to the three types of enzyme inhibitors. Drag the words on the left to the appropriate blanks in the sentences on the right. Each word is used only once....

In the first quarter of the year, Real GDP was $400 billion; in the second quarter it was $398 billion; in the third quarter it was $399 billion; and in the fourth quarter it was $395 billion. Has...

A nonfunctional gene near a similar but functional gene is called a(n) Group of answer choices pseudogene. expanded gene. phenocopy. transposon

ASAP plz. Based on Investment Science Assuming that CAPM is established, answer the questions in the following figure, except that CML represents the Capital Market Line, and rf=0.05 represents the...

The risk-free rate r4.5%, the market return rm-14.5%, the expected return and beta of stock A and B are as following: 1. Stock return 16% 14% 1.2 0.8 Assuming the CAPM is right, (1) draw the...

Parmacheenee Belle's entire common stock portfolio ($500,000) is allotted to an index fund tracking the Standard & Poors 500 index. The expected rate of return on the index is 9.5% and the standard...

1) An investor chooses a portfolio comprising a risk-free asset, yielding r 0 = 2%, and a single risky asset with expected rate of return Z = 6%, and standard deviation of return Z = 0.1, to maximize...

Section A [60 marks] Answer TEN questions. 1. For a frictionless market, show how to obtain today's price of asset 2. P2, from the following information in the absence of arbitrage opportunities...

The table below displays some valuation characteristics for four stocks. Answer the items below by assuming the CAPM holds, and the risk-free interest rate for borrowing and lending is 5%. Stock...