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Question T(essentiaI to cover) rf = 4%. Consider a market described by the table below Cov(i, A) Cov(i, C) Stock Price Cov (i, B) Issued
Question T(essentiaI to cover) rf = 4%. Consider a market described by the table below Cov(i, A) Cov(i, C) Stock Price Cov (i, B) Issued stocks 0.0980 A 0.35 0.1225 0.0420 58 1000 B 60 0.0980 0.1600 1200 0.40 0.0400 0.0420 0.20 0.0400 0.0400 140 500 a. Create a portfolio with a CAPM of 0.6 and a positive weight in the risk-free asset b. Create a portfolio with a CAPM of 0.8 and zero weight in the risk-free asset c. The required return of stock B, E(rB), is 14.67% and the required return of stock C, E(rc), is 8.33%. What are the required returns of stock A, E(rA), and of the market, E(rm)? Question 2 (essential to cover: part a) The two assets X and Y are priced by the CAPM, so that Tx Bx(Mr7) + + Ex Ty By(Mr7)Ey Recall that according to the CAPM Cov(Ex,TM 0 Cov(Ey, TM 0 Cov(Ex, Ey) = ( a. Now consider an equally weighted portfolio of assets X and Y. What are the systematic and the unsystematic risks of the portfolio? Question T(essentiaI to cover) rf = 4%. Consider a market described by the table below Cov(i, A) Cov(i, C) Stock Price Cov (i, B) Issued stocks 0.0980 A 0.35 0.1225 0.0420 58 1000 B 60 0.0980 0.1600 1200 0.40 0.0400 0.0420 0.20 0.0400 0.0400 140 500 a. Create a portfolio with a CAPM of 0.6 and a positive weight in the risk-free asset b. Create a portfolio with a CAPM of 0.8 and zero weight in the risk-free asset c. The required return of stock B, E(rB), is 14.67% and the required return of stock C, E(rc), is 8.33%. What are the required returns of stock A, E(rA), and of the market, E(rm)? Question 2 (essential to cover: part a) The two assets X and Y are priced by the CAPM, so that Tx Bx(Mr7) + + Ex Ty By(Mr7)Ey Recall that according to the CAPM Cov(Ex,TM 0 Cov(Ey, TM 0 Cov(Ex, Ey) = ( a. Now consider an equally weighted portfolio of assets X and Y. What are the systematic and the unsystematic risks of the portfolio
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