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The table below presents information of two securities, A and B. Furthermore, the annual risk-free rate is 3% while the annual expected return of the
The table below presents information of two securities, A and B. Furthermore, the annual risk-free rate is 3% while the annual expected return of the market portfolio is 8%. And the market portfolio has a standard deviation of 2%. The capital asset pricing model (CAPM) is the valid asset pricing model. Security A Security B Expected price in year 1 $132.24 $244.16 Actual price today $114.00 (e) Fair price today (a) (1) Actual percentage annual expected return (b) 9% Fair percentage annual expected return (c) 12% Empirical beta 2.2 CAPM-implied beta (d) (h) a. Calculate the values in cells (a) through (h) in the table above.1 b. Calculate the percentage annual abnormal return of security A and of security B and specify whether the security is underpriced, fairly priced or overpriced.? c. You set up a portfolio by lending $10,000 at the risk-free rate, taking a long position of $10,000 in the market portfolio, taking a long position of $5,000 in security A, and taking a short position of $5,000 in security B. Calculate the percentage annual abnormal return and the dollar annual abnormal profit of this portfolio.3 The table below presents information of two securities, A and B. Furthermore, the annual risk-free rate is 3% while the annual expected return of the market portfolio is 8%. And the market portfolio has a standard deviation of 2%. The capital asset pricing model (CAPM) is the valid asset pricing model. Security A Security B Expected price in year 1 $132.24 $244.16 Actual price today $114.00 (e) Fair price today (a) (1) Actual percentage annual expected return (b) 9% Fair percentage annual expected return (c) 12% Empirical beta 2.2 CAPM-implied beta (d) (h) a. Calculate the values in cells (a) through (h) in the table above.1 b. Calculate the percentage annual abnormal return of security A and of security B and specify whether the security is underpriced, fairly priced or overpriced.? c. You set up a portfolio by lending $10,000 at the risk-free rate, taking a long position of $10,000 in the market portfolio, taking a long position of $5,000 in security A, and taking a short position of $5,000 in security B. Calculate the percentage annual abnormal return and the dollar annual abnormal profit of this portfolio.3
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