Question
Suppose we have the following assets: Asset Expected Return A 10% B 4% Suppose the risk free rate is 2% and the market risk premium
Suppose we have the following assets: Asset Expected Return A 10% B 4% Suppose the risk free rate is 2% and the market risk premium is 5%. Problem 1a. What is the beta of asset A? (Assume A = 0). Problem 1b. What is the beta of asset B? (Assume B = 0). Problem 1c. Suppose we introduced a new asset, asset C.Lets assume that the prediction of CAPM that C = 0 does not hold. Asset C has a beta of C = 1.0 and E(rC ) = 12%. What is the alpha on C? Problem 1d. . Consider a portfolio: 10% rf , 20% A, 30% B, 40% C. What is the on this portfolio? What is the ? What is the expected return? 1
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