Question
Suppose that the relevant equilibrium model is the CAPM with unlimited borrowing and lending at the riskless rate of interest. Asset Expected Return Standard Deviation
Suppose that the relevant equilibrium model is the CAPM with unlimited borrowing and lending at the riskless rate of interest.
| Asset | Expected Return | Standard Deviation | Beta | Residual Variance |
| A | A | 10% | 0.8 | 0.000784 |
| B | 11% | B | 1.2 | 0.019264 |
| C | 12.5% | C | 1.5 | 0.0037 |
| Riskfree | rf | 0% | 0.00 | 0.0000 |
| Market | M | M | 1.00 | 0.0000 |
Find the unknowns in the above table. [6 marks]
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Finance And Economics Discussion Series Bank Risk Rating Of Business Loans
Authors: United States Federal Reserve Board, William B. English, William R. Nelson
1st Edition
1288718810, 9781288718818
