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c) (10%) Assume that Tencent's stock price returns are generated by the single-index model, R; = &; + B;RM te Where R is the excess
c) (10%) Assume that Tencent's stock price returns are generated by the single-index model, R; = &; + B;RM te Where R is the excess return for Tencent (0700.HK) and Hang Seng Index ("HSI"), Ru, is the market's excess return. The risk-free rate is 2%. Suppose also that there are three other securities, HSBC (0005.HK), CK Hutchison (0001.HK). and China Mobile (0941.HK), and their corresponding data are as follow: Security E(R) Bi ole;) 0.8 10% 25% 1.0 12% 10% HSBC (0005.HK) CK Hutchison (0001.HK) China Mobile (0941.HK) 1.2 14% 20% 1) (5%) If Standard Deviation of HSI OM, = 20%, what are the variance of returns of the 3 securities? ii) (5%) If HSI excess return is 20%. According to the CAPM model, is there any arbitrage opportunity in this market? What is it? Analyze the opportunity graphically. c) (10%) Assume that Tencent's stock price returns are generated by the single-index model, R; = &; + B;RM te Where R is the excess return for Tencent (0700.HK) and Hang Seng Index ("HSI"), Ru, is the market's excess return. The risk-free rate is 2%. Suppose also that there are three other securities, HSBC (0005.HK), CK Hutchison (0001.HK). and China Mobile (0941.HK), and their corresponding data are as follow: Security E(R) Bi ole;) 0.8 10% 25% 1.0 12% 10% HSBC (0005.HK) CK Hutchison (0001.HK) China Mobile (0941.HK) 1.2 14% 20% 1) (5%) If Standard Deviation of HSI OM, = 20%, what are the variance of returns of the 3 securities? ii) (5%) If HSI excess return is 20%. According to the CAPM model, is there any arbitrage opportunity in this market? What is it? Analyze the opportunity graphically
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