Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 4) suppose the economy can be in one of the follow

4) Suppose the economy can be in one of the following two states: state 1...

50.1K

Verified Solution

Question

Finance

image
4) Suppose the economy can be in one of the following two states: state 1 and state 2. Each state can occur with an equal probability. The annual return on the market and a certain Security X in the two states are as follows: Market: at the end of the year, the market is expected to yield a return of 15% in state 1 and a return of -5% in state 2. Security X: at the end of the year, the security is expected to yield a return of -7.5% in state 1 and a return of 2.5% in state 2. Furthermore, assume that the annual risk-free rate is 0%. a) Calculate the beta of Security X relative to the market. b) Calculate the alpha (i.e., the Jensen's alpha) of Security X. c) Draw the security market line (SML) and identify Jensen's alpha on the SML graph. Please label the axes and all points (including the market portfolio, the risk-free security, and Security X) in the graph

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

Biology
1.2K views

The video found on the learning materials page refers to beavers as a keystone species...

Medical Sciences
1.2K views

Jimmy is in a car accident. He can't open his mouth and has been told that...

Biology
1.2K views

During strenuous activity, the demand for ATP in muscle tissue is vastly increased. In rabbit leg...

Psychology
1.2K views

What do you consider to be the key concepts which explain group influence? Why?

Biology
1.2K views

Given the following series of biochemical reactions provide 2 genotypes that would provide the colour...

Biology
1.2K views

Which word is correctly used in the sentence?Will you__ my apology?acceptexcept

Physics
1.2K views

1 6 If uniform electric field E Ei 2Eoj where E is a constant exists...

Calculus
1.2K views

Problem 8 Let A and B be square matrces of the same size Which of...

Accounting
1.2K views

Greener Lawn, Inc., provides lawn care and landscaping services to commercial clients. Greener Lawn uses...

Accounting
1.2K views

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following...

Accounting
1.2K views

Ome characteristic of plant assets is that they are: Current assets. Used in operations. Natural...

Accounting
1.2K views

On January 1, 2018, a company issues 3-year bonds with a face value of $50,000...