The Treasury-Bill rate in the following economy is 3%. On the basis of the Capital Asset...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The Treasury-Bill rate in the following economy is 3%. On the basis of the Capital Asset Pricing Model and given the following data: State 1 2 3 4 Probability 0.10 0.20 0.30 0.40 Market Returns -0.23 -0.12 0.14 0.17 Stock X returns -0.40 -0.28 0.22 0.32 Stock Y returns -0.34 -0.16 0 0.40 i) Calculate the risk premium in the market? ii) What is the beta of each individual stock (X and Y) if the correlation between Market Returns and Stock X is 0.994 and the correlation between Market Returns and Stock Y is 0.882 ? iii) If stock X and Stock Y were to be combined into a portfolio with 30% in Stock X and 70% in stock Y, what would be the portfolio's beta and expected return based on the Capital Asset Model? The Treasury-Bill rate in the following economy is 3%. On the basis of the Capital Asset Pricing Model and given the following data: State 1 2 3 4 Probability 0.10 0.20 0.30 0.40 Market Returns -0.23 -0.12 0.14 0.17 Stock X returns -0.40 -0.28 0.22 0.32 Stock Y returns -0.34 -0.16 0 0.40 i) Calculate the risk premium in the market? ii) What is the beta of each individual stock (X and Y) if the correlation between Market Returns and Stock X is 0.994 and the correlation between Market Returns and Stock Y is 0.882 ? iii) If stock X and Stock Y were to be combined into a portfolio with 30% in Stock X and 70% in stock Y, what would be the portfolio's beta and expected return based on the Capital Asset Model?
Expert Answer:
Answer rating: 100% (QA)
i To calculate the risk premium in the market we need to find the difference between the market retu... View the full answer
Related Book For
Understanding Basic Statistics
ISBN: 9781111827021
6th Edition
Authors: Charles Henry Brase, Corrinne Pellillo Brase
Posted Date:
Students also viewed these finance questions
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
1. The famous capital asset pricing model or CAPM is a single factor model that characterizes the portion of an assets total return that results from systematic movements in the broader market. It is...
-
During the 2015-16 period, Larry Energeria Ltd acquired a patent for heating glazing unit, as well as incurring expenses in relation to the development of a new power generation brick that it expects...
-
Calculate the following ratios from the data given below: 1. Debt ratio 2. Debt service coverage multiples 3. Interest coverage Balance Sheet 12/31/2014 Assets Cash..$575,000 Short-term...
-
Consider the real finite-length sequence x[n] shown in Figure. (a) Sketch the finite-length sequence y[n] whose six-point DFT is? Y[k] = W 6 4k X[k], where X[k] is the six-point DFT of x[n]. (b)...
-
Write a thank you response to the following text "Thanks for this clear and concise post on Municipal Bonds. I believe that even though municipal bonds offer tax advantages to higher income...
-
Figure 10.46 shows the experimental transfer function of a structure. Determine the approximate values of \(\omega_{\mathrm{i}}\) and \(\zeta_{\mathrm{i}}\). Magnitude (dB) 20,000 2000 200 20 20 180...
-
Castellitto Company sells automatic can openers under a 75-day warranty for defective merchandise. Based on past experience, Castellitto estimates that 3% of the units sold will become defective...
-
Financial Statement Reporting for a Finance Lease Reynolds Construction (RC) needs a piece of equipment that costs $110,000. The equipment has an economic life of 2 years and no residual value. The...
-
The trial balance of Jeremina plc as at 31 March 20X2 is as follows: Notes: (i) Stock of finished goods on 31 March 20X2 163,000. (ii) Motor expenses and depreciation on motors to be apportioned:...
-
Production and sales estimates for April are as follows: Estimated inventory (units), April 19,000 Desired inventory (units), April 30 18,000 Expected sales volume (units): Area A 3,000 Area B 4,750...
-
The firm's current beta is 1.0, and the current T. Bond rate is 8.5%. The firm expects working capital to increase $50 million both this year and next. The firm plans to finance its net capital...
-
What is the profitability index for the cashflows if the relevant discount rate is 11 percent? (Click to select) C What is the profitability index for the cashflows if the relevant discount rate is...
-
What is the magnitude of the impulse component that is perpendicular to the wall? [J = -2.5 kgm/s] 8. A 35.0 g bullet is traveling nearly horizontally at 465 m/s. It ricochets off a piece of metal...
-
A hook is used to hang heavy machinery in a warehouse. Using the graphical method, determine the smallest angle, 0, that the 300 lb force can be applied in order to keep the resultant R of the two...
-
Derive the single output transfer function of the system. G(s) = s (S-2) (s+1)(s +6s+25)
-
Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y. (Do not round intermediate calculations. Enter your average return and...
-
Pearl Medavoy will invest $10,240 a year for 20 years in a fund that will earn 10% annual interest. . If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If...
-
Consider Graph (a) of Reasons People Like Texting on Cell Phones, based on a GfK Roper survey of 1000 adults. Reasons People Like Texting on Cell Phones (a) Do you think respondents could select more...
-
Let x be a random variable that represents the batting average of a professional baseball player. Let y be a random variable that represents the percentage of strikeouts of a professional baseball...
-
Consider a family with 3 children. Assume the probability that one child is a boy is 0.5 and the probability that one child is a girl is also 0.5, and that the events boy and girl are independent....
-
The time until a chemical reaction is complete (in milliseconds) is approximated by the cumulative distribution function \[ F(x)= \begin{cases}0 & x <0 \\ 1-e^{-0.01 x} & 0 \leq x\end{cases} \]...
-
Consider the time to recharge the flash. The probability that a camera passes the test is 0.8, and the cameras perform independently. What is the probability that the third failure is obtained in...
-
Let the continuous random variable \(X\) denote the current measured in a thin copper wire in milliamperes. Assume that the range of \(X\) is \([4.9,5.1] \mathrm{mA}\), and assume that the...
Study smarter with the SolutionInn App