Question
(8) Your grandpa is 60 years old. He shows you his portfolio: Assets Holdings Cash $ 50,000 S&P 500 Index Fund 100,000 Analog Devices Inc.
- (8) Your grandpa is 60 years old. He shows you his portfolio:
| Assets | Holdings |
| Cash | $ 50,000 |
| S&P 500 Index Fund | 100,000 |
| Analog Devices Inc. | 200,000 |
He asks you to forecast how much the portfolio will be worth in 5 years when he retires. The risk-free rate is 6% per year, the average return on the market portfolio is 12%, the beta of the S&P index is 1.0, and the beta of Analog Devices is 1.5.
- What is the expected rate of return on the portfolio, assuming the CAPM holds?
- What is the forecasted portfolio value after 5 years?
- Your grandpa is not impressed with this CAPM theory since his portfolio has done much better than your forecasted return over the past five years. What would you say about that?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Digital Business And Electronic Commerce
Authors: Bernd W Wirtz
1st Edition
3030634817, 9783030634810
