The current market price of a security is $50, the security's expected return is 15%, the...
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The current market price of a security is $50, the security'sexpected return is 15%, the riskless rate of interest is 2%, andthe market risk premium is 8%.
- What is the beta of the security?
- What is the covariance of returns on this security with thereturns on the market portfolio?
- What will be the security's price, if the covariance of itsrate of return with the market portfolio doubles?
- How is your result consistent with our understanding thatassets with higher systematic risks must pay higher returns onaverage?
show formulas and provide brief explanation of findings
The current market price of a security is $50, the security'sexpected return is 15%, the riskless rate of interest is 2%, andthe market risk premium is 8%.
- What is the beta of the security?
- What is the covariance of returns on this security with thereturns on the market portfolio?
- What will be the security's price, if the covariance of itsrate of return with the market portfolio doubles?
- How is your result consistent with our understanding thatassets with higher systematic risks must pay higher returns onaverage?
show formulas and provide brief explanation of findings
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The current market price of a security is $50, the security'sexpected return is 15%, the riskless rate of interest is 2%, andthe market risk premium is 8%.What is the beta of the security?What is the covariance of returns on this security with thereturns on the market portfolio?What will be the security's price, if the covariance of itsrate of return with the market portfolio doubles?How is your result consistent with our understanding thatassets with higher systematic risks must pay higher returns onaverage?show formulas and provide brief explanation of findings
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