Which of the following is not an assumption of the CAPM A. agents are rational B....
Which of the following is not an assumption of the CAPM
| A. agents are rational |
| B. face significant transactions costs |
| C. there is a risk free asset |
| D. agents only care about expected return and the standard deviation of their portfolio |
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Which of the following is not an assumption of the CAPM
A. agents are rational
B....
There are three assets, A, B and C, where A is the market portfolio and C...
There are three assets, A, B and C, where A is the market portfolio and C is the risk-free asset. The return on the market has a mean of 12% and a standard deviation of 20%. The risk-free asset yields a return of 4%. Asset B is a risky asset whose return has a standard deviation of 40% and a market beta of 1. Assume that the CAPM holds. Compute the expected return of asset B and its covariances with...
(a) In CAPM framework, there are risks that are diversifiable. What are the non-diversifiable risks? (2...
(a) In CAPM framework, there are risks that are diversifiable. What are the non-diversifiable risks? (2 marks) (b) See table 1 below. With respect to the CAPM, which of the following asset would have the greatest impact on the expected return if there is a rise in the expected market return? (2 marks) Table 1 Asset Standard Deviation Beta Asset 1 22% 0.5 Asset 2 15% 1.2 Asset 3 20% 0.9 (c) Suppose the following information about a stock is...
6. Assume that the CAPM holds. Is the following scenario possible? Risk Free Asset Market Portfolio...
6. Assume that the CAPM holds. Is the following scenario possible? Risk Free Asset Market Portfolio Portfolio B Expected return Standard Deviation 8% 0% 18% 22% 15% 12%
Which of the following is correct regarding the CAPM? a. The CAPM implies that the return...
Which of the following is correct regarding the CAPM? a. The CAPM implies that the return of an investor equals the market premium magnified by the portfolio’s beta plus the risk-free rate of return. b. The CAPM assumes investors are not rational and have certain behavioral biases. c. CAPM believes that a portion of total risk remains even after diversification. d. The CAPM assumes investors have modest transaction costs (including taxes).
Home assignment 4 Consider following information Probability of the state of economy Rate of return if state occurs StockA StockB boom normal a. b. c. 0.2 0.8 0.4 0.2 0.05 Calculate the expected...
Home assignment 4 Consider following information Probability of the state of economy Rate of return if state occurs StockA StockB boom normal a. b. c. 0.2 0.8 0.4 0.2 0.05 Calculate the expected return of Calculate the variance and standard deviation of each stock. Calculate the covariance between stock A and B returns and the correlation coefficient. Calculate the expected return of the portfolio (Portfolio!) consisting 40% of stock A and 60% of stock B. Calculate the variance and standard...
(The following information applies to Questions 3 and 4) You observe the following information in a market where the CAPM holds: beta Expected return Annual standard deviation Stock A 1.5 15.0% 0.25 Stock B 1.2 13.2% 0.30 The correlation co
(The following information applies to Questions 3 and 4)You observe the following information in a market where the CAPM holds:betaExpected returnAnnual standard deviationStock A1.515.0%0.25Stock B1.213.2%0.30The correlation coefficient between stock A and the market is 60%. Question 3:Compute the expected return on the market portfolio.Question 4:What is the expected return of a portfolio that is split (perhaps unevenly) between the risk-free asset and the market, if this portfolio has a standard deviation of 0.07?
(a) Suppose that the CAPM holds. Consider stocks A, B, C and D plotted in the graph below together with portfolios X, T (the tangency or market portfolio), Z, and the risk-free asset S. No explanation...
(a) Suppose that the CAPM holds. Consider stocks A, B, C and D
plotted in the graph below together with portfolios X, T (the
tangency or market portfolio), Z, and the risk-free asset S. No
explanation necessary.
(i) If you could invest in the risk-free asset S and only one of
the stocks A, B, C or D, which stock would you choose?
(ii) Which of the stocks, A, B, C, or D, has the highest
beta?
(iii) Which of...
According to the Treynor meassure. Which of the following portfolios are outperforming the market portfolio? The...
According to the Treynor meassure. Which of the following portfolios are outperforming the market portfolio? The risk free rate of interest is 5% Portfolio A: Standard deviation: 20%, Expected return: 14%. The covariance between the portfolio and the market portfolio is 0,045 Portfolio B: Expected return: 25% (according to CAPM) Portfolio C: Alpha: -1%: Beta: 2 Portfolio D: Expected return: 11%: Beta 0,8 The market portfolio: Standard deviation: 15%, Expected return: 10%, Select one: a. Portfolio A b. Portfolio C...
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk premium is 0.07, and the market risk premium has a standard...
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk premium is 0.07, and the market risk premium has a standard deviation of 25%, then what is asset B's expected return under the CAPM?
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk...
Assume the CAPM holds. Consider three feasible portfolios of stocks X, Y and Z with the...
Assume the CAPM holds. Consider three feasible portfolios of stocks X, Y and Z with the following return characteristics: Portfolio X Y Z Expected return 7.5% 5% 10% Standard deviation 5% 10% 15% a) Explain why beta is the appropriate measure of risk in this world. (5 marks) b) Portfolio Y is known to be uncorrelated with the market. Explain why this property implies that the risk-free rate in the economy is 5%. (5 marks) c) It is known that...
(a) In CAPM framework, there are risks that are diversifiable. What are the non-diversifiable risks? (2 marks) (b) See table 1 below. With respect to the CAPM, which of the following asset would have the greatest impact on the expected return if there is a rise in the expected market return? (2 marks) Table 1 Asset Standard Deviation Beta Asset 1 22% 0.5 Asset 2 15% 1.2 Asset 3 20% 0.9 (c) Suppose the following information about a stock is...
6. Assume that the CAPM holds. Is the following scenario possible? Risk Free Asset Market Portfolio Portfolio B Expected return Standard Deviation 8% 0% 18% 22% 15% 12%
Home assignment 4 Consider following information Probability of the state of economy Rate of return if state occurs StockA StockB boom normal a. b. c. 0.2 0.8 0.4 0.2 0.05 Calculate the expected return of Calculate the variance and standard deviation of each stock. Calculate the covariance between stock A and B returns and the correlation coefficient. Calculate the expected return of the portfolio (Portfolio!) consisting 40% of stock A and 60% of stock B. Calculate the variance and standard...
(a) Suppose that the CAPM holds. Consider stocks A, B, C and D
plotted in the graph below together with portfolios X, T (the
tangency or market portfolio), Z, and the risk-free asset S. No
explanation necessary.
(i) If you could invest in the risk-free asset S and only one of
the stocks A, B, C or D, which stock would you choose?
(ii) Which of the stocks, A, B, C, or D, has the highest
beta?
(iii) Which of...
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk premium is 0.07, and the market risk premium has a standard deviation of 25%, then what is asset B's expected return under the CAPM?
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk...
Assume the CAPM holds. Consider three feasible portfolios of stocks X, Y and Z with the following return characteristics: Portfolio X Y Z Expected return 7.5% 5% 10% Standard deviation 5% 10% 15% a) Explain why beta is the appropriate measure of risk in this world. (5 marks) b) Portfolio Y is known to be uncorrelated with the market. Explain why this property implies that the risk-free rate in the economy is 5%. (5 marks) c) It is known that...
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