Suppose the Australian share market has an expected annual return of 12% and an annualised standard...

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Suppose the Australian share market has an expected annual return of 12% and an annualised standard deviation of 16%, and the yield on Commonwealth Government Securities is 3%. Also assume that margin loans are available for leveraged share investments at a borrowing cost r of 5% and with a standard deviation of L of 2%. Calculate the standard deviation of the return for each of the following investments: a) An investment in a diversified managed share fund with a beta of 0.9 (hint: what do you expect the value of o? to be for a diversified share fund?) b) An investment in the shares of a company, which has a beta of 1.6, and residual risk of of 30% c) A leveraged investment in the share fund in part (a), where the loan-to-value ratio is 40% d) A leveraged investment in the shares in part (b), where the loan-to-value ratio is 40% e) Comment on the effects of leverage and beta on the risk of share investments Suppose the Australian share market has an expected annual return of 12% and an annualised standard deviation of 16%, and the yield on Commonwealth Government Securities is 3%. Also assume that margin loans are available for leveraged share investments at a borrowing cost r of 5% and with a standard deviation of L of 2%. Calculate the standard deviation of the return for each of the following investments: a) An investment in a diversified managed share fund with a beta of 0.9 (hint: what do you expect the value of o? to be for a diversified share fund?) b) An investment in the shares of a company, which has a beta of 1.6, and residual risk of of 30% c) A leveraged investment in the share fund in part (a), where the loan-to-value ratio is 40% d) A leveraged investment in the shares in part (b), where the loan-to-value ratio is 40% e) Comment on the effects of leverage and beta on the risk of share investments

Answer rating: 100% (QA)

a o 12 09 16 72 16 09 144 b o 12 16 16 16 16 16 224 c o 72 09 16 272 16 0... View the full answer