Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 3. a)suppose that the expected return on the marke

3. a)Suppose that the expected return on the market portfolio ERm=0.07 , return on the...

50.1K

Verified Solution

Question

Finance

3. a)Suppose that the expected return on the market portfolio ERm=0.07 , return on the risk-free rate rf=0.01 and a variance m2=0.025. Use the Capital Asset Pricing Model (CAPM) to calculate the expected return of a risky asset i that has a covariance im=0 with the market return, also interpret the beta of this security. [4]

b). Securities A and B have forecasted returns of 14% and 18% over the next 12 months. During the same period, the market (M) is expected to generate returns of 16%. If the risk-free rate is 6%, and A = B = 1.1, use the CAPM and the SML to determine whether the securities are correctly valued.

3.Suppose that the expected return on the market portfolio ERm=0.07 , return on the risk-free rate rf=0.01 and a variance m2=0.025. Use the Capital Asset Pricing Model (CAPM) to calculate the expected return of a risky asset i that has a covariance im=0 with the market return, also interpret the beta of this security. [4]

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Mechanical Engineering
1.2K views

a. Conduct an analysis for a gas turbine combustor using Propane, C3H8, you can assume the...

Physics
1.2K views

A block hangs from a string that runs over a pulley and is attached to a...

Accounting
1.2K views

Explain how to compute the operating indicator analysis.

Physics
1.2K views

Please give explaination and step by step solution with di agram and reason especially right...

Physics
1.2K views

Consider a metallic ring of radius 1 m mass 1 kg and carrying a current...

Algebra
1.2K views

Consider G x x 1 x 4 a Identify the x intercepts of the graph...

Algebra
1.2K views

Let f x x x 6 and g x x 4 Find the value of...

Accounting
1.2K views

Suppose X, and Y are two partner has 20,000 capital balance each sharing profit and...

Accounting
1.2K views

Year= 1,2,3,4,5 Rabc stock= -6%,3,5,12,-15 Rs&p index= -4%,2,3,6,-11 What is the Beta of ABC stock?

Accounting
1.2K views

Cliffs Cams (CC) makes cams (surprise!). The average production cost per cam is estimated at...

Accounting
1.2K views

Q1: At the most recent balance sheet date, how much debt does Netflix have to...

Accounting
1.2K views

Calculate the inventory turnover ratio and days to sell, assuming that inventory was $400 on...