Question
Suppose that the relevant equilibrium model is CAPM with unlimited borrowing and lending at a riskless rate of interest. Compute the missing values (a*, b*,
Suppose that the relevant equilibrium model is CAPM with unlimited borrowing and lending at a riskless rate of interest. Compute the missing values (a*, b*, c*, d*, e*) in the following table, showing all intermediate steps.
| Asset | Expected Return | Standard Deviation | Beta | Residual Variance |
|---|---|---|---|---|
| A | 0.08 | 0.1 | a* | 0 |
| B | 0.12 | b* | 2 | 0.49 |
| C | c* | d* | 1 | 0 |
| D | 0.05 | e* | 0 | 0.36 |
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Advanced Finance Theories
Authors: Ser-Huang Poon
1st Edition
9814460370, 978-9814460378
