Answered step by step
Verified Expert Solution
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)
- 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)
- 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)
- 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
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