Solve the following questions using the data given below. Stocks X Y Other Betas X Y...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Solve the following questions using the data given below. Stocks X Y Other Betas X Y Mean Return 8 12 X Y Correlations X and Y 0.3 Covariance with the market 4 2 Market Variance Factor1 1.2 0.5 RF Market Factor1 Factor2 Factor3 Standard Deviation 4 Factor2 -2 -0.6 Risk Premiums 0.50% 5% 1% 2% 4% 1.2 2 Factor3 1 1.5 1. Portfolio 1 X (50%) and Y (50%) a-) Find the Standard Deviation and the Expected Return of the portfolio 1. Fill the following variance covariance matrix (just the numbers up to 2 decimal points) STDEV = MEAN= Market: X Betas Four factor: Y b-) Find the market, factor 1, factor 2, and factor 3 betas of portfolio 1. X Y market Factor1 Factor2 c-) What are the required rate of returns of portfolio 1 based on CAPM and four factor models, respectively. Factor3 2-) (15 points) Portfolio 2: X (30%) - Y (30%) - risk free rate (40%) a-) Find the Standard Deviation and the Expected Return of the portfolio Fill the following variance covariance matrix (just the numbers up to 2 decimal points) X Y stdev BETA mean b-) Find the market, factor 1, factor 2, and factor 3 betas of the portfolio. market portfolio Y portfolio rf CAPM Factor 1 Factor 2 c-) What are the required rate of returns of the portfolio based on CAPM and four factor models, respectively. Factor 3 4 factor 3-) (12.5 points) a- What are required rate of returns on X, Y, and risk-free rate based on CAPM and FF4 factor models? stdev X Y rf b- Using the average returns as expected returns, determine whether X, Y, and risk-free rate are overvalued, undervalued, fairly priced based on CAPM model. X Y rf mean CAPM FF4 4-) (12.5 points) If you have ZERO TOLERANS FOR RISK (DONOT LIKE RISK AT ALL), what would be the return and standard deviation of your portfolio based on CAPM and four factor models? (You can only invest in stocks X and Y and the risk-free rate) Overvalued Undervalued Fairly Priced CAPM Four factor Solve the following questions using the data given below. Stocks X Y Other Betas X Y Mean Return 8 12 X Y Correlations X and Y 0.3 Covariance with the market 4 2 Market Variance Factor1 1.2 0.5 RF Market Factor1 Factor2 Factor3 Standard Deviation 4 Factor2 -2 -0.6 Risk Premiums 0.50% 5% 1% 2% 4% 1.2 2 Factor3 1 1.5 1. Portfolio 1 X (50%) and Y (50%) a-) Find the Standard Deviation and the Expected Return of the portfolio 1. Fill the following variance covariance matrix (just the numbers up to 2 decimal points) STDEV = MEAN= Market: X Betas Four factor: Y b-) Find the market, factor 1, factor 2, and factor 3 betas of portfolio 1. X Y market Factor1 Factor2 c-) What are the required rate of returns of portfolio 1 based on CAPM and four factor models, respectively. Factor3 2-) (15 points) Portfolio 2: X (30%) - Y (30%) - risk free rate (40%) a-) Find the Standard Deviation and the Expected Return of the portfolio Fill the following variance covariance matrix (just the numbers up to 2 decimal points) X Y stdev BETA mean b-) Find the market, factor 1, factor 2, and factor 3 betas of the portfolio. market portfolio Y portfolio rf CAPM Factor 1 Factor 2 c-) What are the required rate of returns of the portfolio based on CAPM and four factor models, respectively. Factor 3 4 factor 3-) (12.5 points) a- What are required rate of returns on X, Y, and risk-free rate based on CAPM and FF4 factor models? stdev X Y rf b- Using the average returns as expected returns, determine whether X, Y, and risk-free rate are overvalued, undervalued, fairly priced based on CAPM model. X Y rf mean CAPM FF4 4-) (12.5 points) If you have ZERO TOLERANS FOR RISK (DONOT LIKE RISK AT ALL), what would be the return and standard deviation of your portfolio based on CAPM and four factor models? (You can only invest in stocks X and Y and the risk-free rate) Overvalued Undervalued Fairly Priced CAPM Four factor
Expert Answer:
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
Students also viewed these finance questions
-
The party in a swap that receives fixed-rate payments will always have zero basis risk since the fixed-rate swap payments can be structured to cover the fixed-rate liability payments
-
"internet radios" for streaming audio, and personal video recorders and players. Describe design and evaluation processes that could be used by a start-up company to improve the usability of such...
-
The current quoted price of a 13% coupon bond is $110. It pays coupon semi-annually. The next coupon will be paid in 6-days (total number of days in this semi-annual period is 181) and the futures...
-
Lucien Corporation uses straight-line depreciation for financial reporting purposes but CCA (the single diminishing-balance method) for income tax purposes. (a) What is the major difference between...
-
Metropolitan Power and Light (MPL) tracks peak power usage, measured in gigawatts (GW), for its service area. MPL reports that in January peak daily demand for electrical power follows a normal...
-
Gold-on-gold nuclear collisions at the Relativistic Heavy Ion Collider (RHIC) at the Brookhaven National Laboratory create a quark-gluon plasma with an energy density of about \(4 \mathrm{GeV} /...
-
The condensed comparative income statement and balance sheets to Tola Corporation appear below and on the next page. All figures are given in thousands of dollars, except earnings per share....
-
Briefly describe the two Oracle Administrative Tools and talk about some of their administration usage: -SQL*Plus - Oracle Enterprise Manager Database Express (EM Express) Question2: Explain briefly...
-
Identity is the image that a person wants peers and prospective employers to know about them and it should be an important marketable factor considered by all job seekers.
-
In April, the Sparky corporation had $200,000 of sales. 89% of these sales were credit sales and the rest were cash sales. For credit sales, 20% are typically paid by customers in the month following...
-
If you deposit $ 1 , 0 0 0 per month for 4 years in an account earning 6 % annually, what will you save by the end of year 4 assuming end of the period payments?
-
O. A seller wanted to net $20,000 on the sale of property. The seller had a first mortgage on the property of $61,800. The broker charged a 7% commission with the seller also having to pay $2,000 in...
-
. Calculate the total excavation and embankment volumes between stations 1 and 3. (30p) S S S 0+034 Su S-14 m S21-7 m S-1B m Siz 1C m S22-6 m S ID m 0+05B 3 0+07D S S
-
A plate carries a charge of-2 C, while a rod carries a charge of 2.50 C. How many electrons must be transferred from the plate to the rod, so that both objects have the same charge? N-Number...
-
2. Starting from benzene, synthesize the following molecules. You may use other organic and inorganic reagents and solvents as needed. a. b. O2N NH2 C. Br
-
Per Bag Direct materials: 25 pounds of CWhiz-2000 @ $0.08/lb. = $ 2.00 Direct labor: 0.05 hour @ $32.00/hr. = $ 1.60 The company manufactured 100,000 bags of Cheese-Be-Good in December and used...
-
Sparkling Water, Inc., expects to sell 2.8 million bottles of drinking water each year in perpetuity. This year each bottle will sell for $1.25 in real terms and will cost $.90 in real terms. Sales...
-
The Germinating Flower Co. has earnings of $1.75 per share. The benchmark PE for the company is 18. What stock price would you consider appropriate? What if the benchmark PE were 21?
-
Illinois Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 7 percent, payable annually. The one-year interest rate is 7 percent. Next year, there is a 35 percent...
-
Identify the most promising areas of research for future researchers in the area of hedge fund systemic risk.
-
Discuss how hedge funds and the potential for shadow banking may contribute to systemic risk and the prospect for contagion.
-
Explain the relation between hedge fund characteristics and risks.
Study smarter with the SolutionInn App