Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 5 (12 marks) Describe the systematic and non-systematic risk components of the following financial assets: i. 3-month US Treasury bill; ii. Hang Seng Index

Question 5 (12 marks)

  1. Describe the systematic and non-systematic risk components of the following financial assets:

i. 3-month US Treasury bill;

ii. Hang Seng Index (HSI) tracker fund with standard deviation (a total risk) of 20%.

(4 marks)

  1. Consider two investments, X and Y. Investment X has a beta of 1.10 and a standard deviation of 17%, all of which is systematic risk. Investment Y has a beta of 0.95 and a standard deviation of 30%, half of which is non-systematic risk. Which investment should have a higher expected rate of return? Explain your answer.

(4 marks)

  1. Mr. Jobs observes a strong demand for the new iPhones and plans to buy Apple stock. However, Mr. Jobs does not know what return he should expect from his investment. He does know that a risk-free rate is 2%, a market return is 10%, and Apples stock beta is 1.20. Help Mr. Jobs and calculate Apples expected return. Show your calculations.

(4 marks)

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

Step: 3

blur-text-image

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

Personal Finance

Authors: Jack Kapoor

12th Edition

125996776X, 9781259967764

More Books

Students also viewed these Finance questions

Question

Define Decision making

Answered: 1 week ago

Question

What are the major social responsibilities of business managers ?

Answered: 1 week ago

Question

What are the skills of management ?

Answered: 1 week ago

Question

1. To gain knowledge about the way information is stored in memory.

Answered: 1 week ago