(ii.) (iii.) Calculate the firm specific' risk of the two risky assets; asset-1 and asset-2. Based...

 

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(ii.) (iii.) Calculate the firm specific' risk of the two risky assets; asset-1 and asset-2. Based on the CAPM, what should be the expected return of the two assets? Explain, what an investor would do, based on the CAPM, when you compare the expected return based on the CAPM and the expected return given in the table. Suppose the market ER is 10% and the expected returns for asset 1 and asset 2 are 8% and 12% respectively. With the risk free rate being 3% what would be the beta of the two assets based on the CAPM? Asset 1 Asset 2 Market Risk free rate ER 8% 12% 10% 3% Volatility (Standard deviation) 25 27 22 Beta 0.9 1.2 (ii.) (iii.) Calculate the firm specific' risk of the two risky assets; asset-1 and asset-2. Based on the CAPM, what should be the expected return of the two assets? Explain, what an investor would do, based on the CAPM, when you compare the expected return based on the CAPM and the expected return given in the table. Suppose the market ER is 10% and the expected returns for asset 1 and asset 2 are 8% and 12% respectively. With the risk free rate being 3% what would be the beta of the two assets based on the CAPM? Asset 1 Asset 2 Market Risk free rate ER 8% 12% 10% 3% Volatility (Standard deviation) 25 27 22 Beta 0.9 1.2

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i The firmspecific risk of an asset can be calculated by subtracting the square of the assets correl... View the full answer