Question
You currently own $100 000 worth of Walmart stock. Suppose that Walmart has an expected return of 21% and a volatility of 27%. The market
You currently own $100 000 worth of Walmart stock. Suppose that Walmart has an expected return of 21% and a volatility of 27%. The market portfolio has an expected return of 12% and a volatility of 17.6%. The risk-free rate is 5%.
a) Assuming the CAPM assumptions hold, what alternative investment has the lowest possible volatility while having the same expected return as Walmart? The portfolio is long x% market and short x% risk-free asset. Find the x percentages and round your answer to the nearest integer, express your answer as a percentage.
b) The volatility of the portfolio in a) is? Round your answer to one decimal, and express your answer as a percentage.
c) Assuming the CAPM assumptions hold, what alternative investment has the highest expected return while having the same volatility as Walmart? The portfolio is long x% market and short x% risk-free asset- Fins the x percentages and round your answer to the nearest integer, express your answer as a percentage.
d) The expected return of the portfolio in c) is? Round your answer to one decimal, and express your answer as a percentage.
Step by Step Solution
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Step: 1
a To find the x percentages in the portfolio with the lowest possible volatility while having the sa...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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