Question: It a question about risk-free rate, expected return and the variance, the beta of risky asset, mean-variance efficient Consider an economy with two risky assets

It a question about risk-free rate, expected return and the variance, the beta of risky asset, mean-variance efficient

Consider an economy with two risky assets and a risk-free bond. The covariance between the returns of the two risky assets is %. Suppose the CAPM model correctly describes the asset returns and the following information is available: Asset Number of Shares Price Expected Return Return Variance l 1 2 2 1/4 2 1 2 3 3/4 a) Find the expected return and the variance of the market portfolio. (10 marks) ) l d) What would be the expected return of a new asset which is in zero net supply and has a beta of 0.5 with respect to each of the two risky assets? (10 marks) Compute the beta of risky asset 1 with the market portfolio. (10 marks) Find the risk-free rate. Justify your answer. (10 marks) (e) Are assets 1 and 2 meanvariance efficient? Justify your answer. (10 marks)

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 Economics Questions!

Problem 1 (20%) Consider a market with n risky assets and one risk-free asset. The investor constructs the portfolio of all available assets. The portfolio mean return and variance are given by Mp =...

Consider a market with n risky assets and one risk-free asset. The investor constructs the portfolio of all available assets. The portfolio mean return and variance are given by where Hpw' (1r)+rf, =...

Exercise 2 Consider the following discrete-time multiple period economy with a single repre- sentative agent. There is no terminal period so the economy continues forever. The agent is endowed with...

only give answer E answer of ABCD https://www.chegg.com/homework-help/questions-and-answers/question-invest-two-risky-assets-b-risk-free-asset-return-5--expected-return-standard-devi-q25046699 only...

Very simple and basic question in FFM(foundation of financial market). I have finished these questions already very quickly. Need your help to double check my answers. Name:...

You can invest in two risky assets A and B, and in the risk-free asset with a return of 5%. The expected return and the standard deviation of the risky asset A is 10% and 0.2 respectively whereas the...

Suppose a mean-variance investor has access to a risk-free asset with a 0% return and two risky securities with the following properties: Expected Return Volatility Risky Asset 1 10% 20% Risky Asset...

Question i You can invest in two risky assets A and B, and in the risk-free asset with a return of 5%. The expected return and the standard deviation of the risky asset A is 10% and 0.2 respectively...

Question 1: You can invest in two risky assets A and B, and in the risk-free asset with a return of 5%. The expected return and the standard deviation of the risky asset A is 10% and 0.2 respectively...

(A Factor Model Question) Based on a single factor, model, you have performed the following regressions on the returns to stocks X and Y against the returns on a market index (MI) which you believe...

For a cryogenic experiment heat should be removed from a space at 75 K to a reservoir at 180 K. A heat pump is designed to use nitrogen and methane in a cascade arrangement (see Fig. 11.41), where...

Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: (Leave no answer blank....

In Brixton Prison, women were compelled to work under which type of rules during major portions of the day? secular lam Hextituti nules of slence nhes of pooductivity

Jeanne, a 54-year-old woman, worked as a medical research librarian for 10 years before quitting in her late forties. She later applies for an open position at the same library but is concerned about...

2. Now change the performance so that you play out the dream in your inner the-atre. Apply colours to the images you envision. Give some pictures a stronger colour than others and vice versa. Also...

1. Imagine that you have already achieved a dream or a goal you have set for yourself. Both the goal and the dream correspond to your basic values. Try to visualize this dream or goal. What do you...

4. What means will you use to achieve these values?