Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

10) The risk-free rate is 10% per annum, the expected return on the market is 18% per annum, and the standard deviation of the market

image text in transcribed
10) The risk-free rate is 10% per annum, the expected return on the market is 18% per annum, and the standard deviation of the market is 15%. A particular share has a standard deviation of 45%, a correlation with the market of 0.33, and an expected return of 30% per annum You currently hold a portfolio of $100,000 invested in the market portfolio. Suppose you switch $1,000 out of the market portfolio into the share identified above. a) What would happen to the expected return and standard deviation of your portfolio b) According to the CAPM, what should be the expected return on the share? c) If everybody believed that the share would earn a return of 30% per annum, what would happen to its price

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Cyber Attack Survival Manual

Authors: Heather Vescent ,Nick Selby

1st Edition

1681886545, 978-1681886541

More Books

Students also viewed these Finance questions

Question

How does co-op advertising differ from tactical marketing?

Answered: 1 week ago