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Required: a. What is the prediction of the CAPM with respect to the expected return on any security? (1 mark) b. Why is the variance
Required: a. What is the prediction of the CAPM with respect to the expected return on any security? (1 mark) b. Why is the variance of a portfolio of internationally diversified stocks likely to be lower than the variance of a portfolio of U.S. stocks? (2 marks) c. Assuming that the expected yen return on the Nikkei 225 index is 5%, and its volatility is 18%, and the volatility of the euro/yen exchange rate is 9%, what is the volatility of the euro return on the Nikkei 225 index if the correlation between the Nikkei index's return in yen and changes in the euro/yen exchange rate is 0.15? (3 marks) d. Using the following stock and gold return data for the year of 2022, calculate the return and risk (standard deviation) of a portfolio invested equally in the ASX 200 index and in the gold assets. (4 marks) Average ASX 200 index return -6.52% 215.75% Average gold return Volatility (o) of the ASX 200 index return 23% Volatility (o) of the gold return 8% Correlation of ASX 200 index and gold return -0.45
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