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g. The expected rates of return and the beta coefficients of the alternatives as supplied by the bank's computer program are as follows: Return (i)
g. The expected rates of return and the beta coefficients of the alternatives as supplied by the bank's computer program are as follows: Return (i) 17.4% 15.0 Security High Tech Market U.S. Rubber T-bills Collections Risk (B) 1.29 1.00 0.68 0.00 -0.86 13.8 8.0 (1) For the same information in the chart, write out the SML equation, use it to calculate the required rate of return on each alternative, and then graph the relationship between the expected and required rates of return. (2) How do the expected rates of return compare with the required rates of return? (3) Does the fact that Collections has a negative beta coefficient make any sense? What is the implication of the negative beta? (4) What would be the market risk and the required return of a 50-50 portfolio of High Tech and Collections? Of a 50-50 portfolio of High Tech and U.S. Rubber? g. The expected rates of return and the beta coefficients of the alternatives as supplied by the bank's computer program are as follows: Return (i) 17.4% 15.0 Security High Tech Market U.S. Rubber T-bills Collections Risk (B) 1.29 1.00 0.68 0.00 -0.86 13.8 8.0 (1) For the same information in the chart, write out the SML equation, use it to calculate the required rate of return on each alternative, and then graph the relationship between the expected and required rates of return. (2) How do the expected rates of return compare with the required rates of return? (3) Does the fact that Collections has a negative beta coefficient make any sense? What is the implication of the negative beta? (4) What would be the market risk and the required return of a 50-50 portfolio of High Tech and Collections? Of a 50-50 portfolio of High Tech and U.S. Rubber
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