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28 Sep 2019
1. The Treasury bill rate is 4percent, and the expected return on the market portfolio is 12percent. Using the capital asset pricing model:
b. What is the risk premium on the market?
c. What is the required return on an investment with a beta of1.5?
d. If an investment with a beta of .8 offers an expected return of9.8 percent does it have a positive NPV?
e. If the market expect a return of 11.2 percent from Stock X, whatis its beta?
2. Percival Hygiene has $10 million invested in long-term corporatebonds. This bonds portfolios expected annual rate of return is 9percent and annual standard deviation is 10 percent.
Amanda Reckcon with, Percival's financial adviser recommends thatPercival consider investing in an index fund which closely tracksthe Standard and Poor's 500 index.
a.Suppose Percival put all his money in a combination of index fundand treasury bills. Can he thereby improve his expected rate ofreturn without changing the risk of portfolio . The treasury billyield is 6 percent.
b.Could Percival do even better by investing equal amount in thecorporate bond portfolio and the index fund? The correlationbetween the bond portfolio and the index fund is + 1.
1. The Treasury bill rate is 4percent, and the expected return on the market portfolio is 12percent. Using the capital asset pricing model:
b. What is the risk premium on the market?
c. What is the required return on an investment with a beta of1.5?
d. If an investment with a beta of .8 offers an expected return of9.8 percent does it have a positive NPV?
e. If the market expect a return of 11.2 percent from Stock X, whatis its beta?
2. Percival Hygiene has $10 million invested in long-term corporatebonds. This bonds portfolios expected annual rate of return is 9percent and annual standard deviation is 10 percent.
Amanda Reckcon with, Percival's financial adviser recommends thatPercival consider investing in an index fund which closely tracksthe Standard and Poor's 500 index.
a.Suppose Percival put all his money in a combination of index fundand treasury bills. Can he thereby improve his expected rate ofreturn without changing the risk of portfolio . The treasury billyield is 6 percent.
b.Could Percival do even better by investing equal amount in thecorporate bond portfolio and the index fund? The correlationbetween the bond portfolio and the index fund is + 1.
b. What is the risk premium on the market?
c. What is the required return on an investment with a beta of1.5?
d. If an investment with a beta of .8 offers an expected return of9.8 percent does it have a positive NPV?
e. If the market expect a return of 11.2 percent from Stock X, whatis its beta?
2. Percival Hygiene has $10 million invested in long-term corporatebonds. This bonds portfolios expected annual rate of return is 9percent and annual standard deviation is 10 percent.
Amanda Reckcon with, Percival's financial adviser recommends thatPercival consider investing in an index fund which closely tracksthe Standard and Poor's 500 index.
a.Suppose Percival put all his money in a combination of index fundand treasury bills. Can he thereby improve his expected rate ofreturn without changing the risk of portfolio . The treasury billyield is 6 percent.
b.Could Percival do even better by investing equal amount in thecorporate bond portfolio and the index fund? The correlationbetween the bond portfolio and the index fund is + 1.
Casey DurganLv2
28 Sep 2019
