Question: In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of A is 20%,

In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of A is 20%, and its beta is 1.6. The expected return of B is 11%, and its beta is 0.7. The expected return of the market portfolio is ___and the risk free rate is ___.

	A.	15% and 6%
	B.	15% and 5%
	C.	14% and 4%
	D.	16% and 6%
	E.	18% and 6%

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock 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!

The Tuff Wheels was getting ready to start its development project for a new product to be added to its small motorized vehicle line for children. The new product is called the Kiddy Dozer. It will...

QUESTION 13 In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of A is 20%, and its beta is 1.6. The expected return of B is 11%, and...

QUESTION 1 5 points In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of A is 20%, and its beta is 1.6. The expected return of Bis...

QUESTION 4 5 points The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 0.8 to offer a rate of return of 10 percent, you should A. buy...

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta...

QUESTION 18 In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of A is 21%, and its beta is 1.8. The expected return of B is 13%, and...

QUESTION 7 An investor invests 40 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 60 percent in a T-bill that pays 6 percent. His portfolio's...

QUESTION 19 Investment Expected Return E(r) Standard Deviation 0.12 0.3 0.15 0.5 0.21 0.16 0.24 0.21 U = E(1) - (A/2) Var(), where A = 5. Based on the utility function above, which investment would...

QUESTION 2 In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of A is 20%, and its beta is 1.6. The expected return of B is 11%, and...

You want to buy a $25,000 car. The company is offering a 2% interest rate for 48 months (4 years). What will your monthly payments be?

You have two accounts receivable: the first within 2 months worth $500,000 and the second for $1,000,000 within 4 months. Simultaneously you have to pay off a debt with 3 payments of $500,000 each...

Two angles of a triangle are 55 and 70. a Work out the third angle. b What is the name of this type of triangle? Choose the correct word. equilateral isosceles right-angled perpendicular

8:37 * N. 80% i ... OBJECTIVES: Create relationships Create a Pivot Table from Related Tables Create a PivotChart Modify the PivotChart The major section in this chapter :ontinuation is: Data...

5. Corporations often distribute profits to their shareholders in the form of dividends, which are simply checks mailed out to shareholders. Suppose that you have the chance to buy a share in a...

8. In this chapter we discussed short-term U.S. government bonds. But the U.S. government also issues longer-term bonds with horizons of up to 30 years. Why do 20-year bonds issued by the U.S....

5. Sammy buys stock in a suntan-lotion maker and also stock in an umbrella maker. One stock does well when the weather is good; the other does well when the weather is bad. Sammys portfolio indicates...