Question: 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

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 its beta is 1. What is the slope of the SML?

A.

0.1
B.

0.12
C.

0.08
D.

0.2
E.

0.15

QUESTION 17

Given an optimal risky portfolio with expected return of 14% and standard deviation of 30% and a risk free rate of 5%, what is the slope of the best feasible CAL?

A.

0.45
B.

0.14
C.

0.36
D.

0.30
E.

0.40

QUESTION 16

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 8 percent, you should

A.

sell short CAT because it is overpriced.
B.

hold CAT because it is fairly priced.
C.

buy CAT because it is overpriced.

D.

sell stock short CAT because it is underpriced.
E.

buy CAT because it is underpriced.

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!

Q:

Beauville Furniture Corporation produces sofas, recliners, and lounge chairs. Beauville is located in a medium-sized community in the southeastern part of the United States. It is a major employer in...

Q:

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...

Q:

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...

Q:

QUESTION 3 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...

Q:

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...

Q:

QUESTION 10 In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of Ais 20%, and its beta is 1.6. The expected return of B is 11%, and...

Q:

QUESTION 10 In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of Ais 20%, and its beta is 1.6. The expected return of B is 11%, and...

Q:

QUESTION 16 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...

Q:

QUESTION 22 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...

Q:

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...

Q:

QUESTION 5 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...

Q:

Josh Kuchin is studying for the next accounting mid-term examination. What should Josh know about? (a) Departing from the cost basis of accounting for inventories (b) The meaning of "market" in the...

Q:

Which of the following employees of Bland Foods, Inc., is(are) considered a highly compensated employee in 2014? Ownership share Current year salary Prior year salary 1 5% $130,000 $100,000 2 6%...

Q:

1 . What is the definition of investment risk? The chance the investor can triple his investment The probability of losing the value of investments due to various types of investment risks Risk...

Q:

Weston Products manufactures an industrial cleaning compound that goes through three processing departments-Grinding, Mixing, and Cooking. All raw materials are introduced at the start of work in the...