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An analysis is reviewing various asset alternatives and provided with the following information directly pertaining to the broad equity market in U.S, and various industries
An analysis is reviewing various asset alternatives and provided with the following information directly pertaining to the broad equity market in U.S, and various industries within the U.S. market that are of particular investment interest. Expected risk premium for overall global investable market (GIM)portfolio 3.5% Expected standard deviation for the GIM portfolio 8.5% Expected Std. Dev. For U.S. biotech industry equity investments 12.0% Expected Std. Dev. For U S. auto industry equity investments 6.0% Expected Std, Dev. For U.S. consumer products industry equity investment 7.5% Assume that the U.S. market is 90% integrated with world markets. The U.S. biotech industry has a correlation of 0.7 with the GM portfolio The U.S. auto industry has a correlation of 0.8 with the GIM portfolio The U.S. Consumer Products industry has correlation of 0.8 with the GIM portfolio Basing your answers only the data presented in the table above and using the international capital asset pricing model-in particular, the Singer-Tehaar approach- estimate the expected risk premium for the following: a. U.S. biotech industry b. U.S. auto industry c. U.S. consumer products industry Judge which industry is attractive from valuation perspective. Explain
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