If the simple CAPM is valid, is the situation shown below possible? Portfolio Risk-free Market A O Possible Expected Return Not possible 5% 19% 14% Beta 0 1.0 1.3
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- Consider a two-factor Arbitrage Pricing Theory (APT) model, T; = a; + b1,ifı + b2.i f2 + €i, with the following information Asset i Asset 1 0.07 0.50 0.25 Asset 2 0.15 1.10 0.75 Asset 3 0.20 b1,3 Hi b1i b2i 1.0 and the risk-free rate rp is 0.025. (a) Find the value of b13 to preclude arbitrage opportunity. (b) is an Asset 4 with 4 = 0.13, b14 = 0.8, and b2.4 = 0.4. Explain how you would exploit an arbitrage opportunity if thereAssuming your utility function U = E(r) - Ao². Consider the investments shown in the table. If your risk aversion coefficient is -2, which investment would you choose? Investment E[r] #1 #2 #3 #4 #2 #3 #4 #1 12% 15% 15% 24% σ 40% 40% 30% 40%Suppose you observe the following situation:Security Beta Expected ReturnDiamond Co 1.3 0.2Spade Co 0.8 0.14 (a) According to the above information, could we figure out the market return and risk-free rate? Explain your answer. (b) Discuss the possibility of including zero beta or negative beta assets in your portfolio. Explain the pros and cons of including these types of assets.
- Consider the following financial market with two risky assets x and y as well as a risk-free asset f: E[r]. x (10%, 8%) •z (6.6%, 6.3%) y (8%, 5%) (0%, 3%) f Is it possible to construct portfolio z with existing assets? Explain.portfolio.. - Word **** References Mailings Review View Help RCM Acrobat Foxit Reader PDF Foxit PDF 5. The risk-free rate and the expected market rate of return are 0.04 and 0.14, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.25 is equal to: a. 0.004 b. 0.165 C. 0.121 d. 0.132Can someone give an example or scenarios about the following: 1. Efficient portfolio2. Market portfolio3. Efficient frontiers
- A. Realized return B. Ex ante alpha C. Ex post alpha D. Realized beta Question 7 (MCQ) One example of a build up model is: A. A macroeconomic model B. Capital Asset Pricing Model (CAPM) C. Bond yield plus risk premium D. Fama and French modelFor the toolbar , press ALT + F10 ( PC ) or ALT + FN + F10 ( Mac What is the key difference what is the key deference between Value - at - Risk ( VaR ) and volatility ? More specifically, what is the advantage of using VaR as opposed to volatility ?choose which one ? 3.Assume CAPM holds. What is the correlation between an efficient portfolio and the market portfolio?a.1b.-1c.0d.Not enough information
- 4.What is the expected return, Standard denation and Coeknicient of vanation of an equally werghted port folLo OF technology, T-bills and inernatin et Funds? tiDW does your Dort folio risk and return compane to that Of the Spp500 index?Remember the following the 1-factor model or CAPM is defined as re-rf beta * [rm -rf] what is the return on equity (re) if rf = 0.05 rm = 1.88 beta = 1.47Suppose you have the follow information about Intrinsic Co. and the market. What is the Beta of Intrinsic Co.? Probability 0.48 0.35 0.17 a) 1.39 Ob) 1.13 c) 1.00 d) 1.26 Intrinsic Co. Returns 15.4% 17.9% 21.5% Market Returns 9.1% 10.8% 13.5%