Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your investment portfolio consists of $10,000 invested in only one stock-Amazon. Suppose the risk-free rate is 4%, Amazon stock has an expected return of 14%

image text in transcribed
Your investment portfolio consists of $10,000 invested in only one stock-Amazon. Suppose the risk-free rate is 4%, Amazon stock has an expected return of 14% and a volatility of 45%, and the market portfolio has an expected return of 11% and a volatility of 20%. Under the CAPM assumptions, a. What alternative investment has the lowest possible volatility while having the same expected return as Amazon? What is the volatility of this Investment? b. What investment has the highest possible expected return while having the same volatility as Amazon? What is the expected return of this investment? Hint. Make sure to round all intermediate calculations to at least five decimal places. a. What alternative investment has the lowest possible volatility while having the same expected return as Amazon? To create an alternative investment that has the lowest possible volatility while having the same expected return as Amazon, we use the following strategy worth of Amazon stock. (Round to the nearest dollar.) at the risk-free rate (Round to the nearest dollar.) worth of the market portfolio. (Round to the nearest dollar.) Buy: worth of the risk-free investment. (Round to the nearest dollar.) Sell: Borrow: Buy

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

=+create better messages in less time

Answered: 1 week ago

Question

1. How do most insects respire ?

Answered: 1 week ago

Question

Who is known as the father of the indian constitution?

Answered: 1 week ago

Question

1.explain evaporation ?

Answered: 1 week ago

Question

Who was the first woman prime minister of india?

Answered: 1 week ago

Question

Explain the concept of going concern value in detail.

Answered: 1 week ago

Question

How about erroneous payments as a percentage of total payments?

Answered: 1 week ago

Question

What is the age of the first outstanding invoice?

Answered: 1 week ago

Question

How much did the company purchase from that supplier?

Answered: 1 week ago