Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 46%. Portfolios A and B are both well diversified.PortfolioABeta on M₁1.52.0Beta on My2.1-0.6Required:What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2decimal places.)Expected return-beta relationship E(rp) =Expected Return (%)361445 60Answer is not complete.Bp1Bp2

Expected return is frequently used alongside risk metrics like beta or standard deviation. When…

Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independent firm specific components with a standard deviation of 46%. Portfolios A and B are both well diversified. Portfolio A B Beta on M 1.5 2.0 Beta on My 2.1 -0.6 Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(fp)= Expected Return (5) 36 14 45.60 Answer is not complete. βρε Bp2

Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independent firm specific components with a standard deviation of 46%. Portfolios A and B are both well diversified. Portfolio A B Beta on M 1.5 2.0 Beta on My 2.1 -0.6 Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(fp)= Expected Return (5) 36 14 45.60 Answer is not complete. βρε Bp2

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Assume both portfolios A and B are well diversified, that E(rA) = 12.6% and E(rB) = 13.6%. If the economy has only one factor, and βA = 1 while βB = 1.2, what must be the risk-free rate? (Do not round intermediate calculations. Round your answer to 1 decimal place.)
Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 5%, and all stocks have independent firm- specific components with a standard deviation of 48%. Portfolios A and B are both well diversified. Portfolio A B Beta on M₁ 1.6 2.2 Beta on M₂ 2.3 -0.6 Required: What is the expected return-beta relationship in this economy? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(rp) = Expected Return (%) 38 8 Answer is complete but not entirely correct. Bp1 + 5.00 % 4.43 11.26 Bp2
Assume that both portfolios A and B are well diversified, that E(rA) = 22%, and E(rB) = 17%. If the economy has only one factor, and βA = 1.5, whereas βB = 1.1, what must be the risk-free rate? (Do not round intermediate calculations. Round your answer to two decimal places.)
Which of the following statements regarding the graph of the SML is most accurate? Select one O A. O B. B-1.0 The beta of Portfolios A, B, and C are identical as they fall directly on the line. The expected return of Portfolio C is the difference between the market's expected return and the risk-free rate. O C. Portfolio A has lower systematic risk than Portfolio B. OD. The slope of the line is the market risk premium.
QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium is 6% whereas the beta of HelloFresh SH. stock is 1.8, compute the required rate of return using CAPM. 2) Compute the value of each investment based on your required rate of return and interpret the results comparing with the market values. 3) Which investment would you select? Explain why using appropriate financial jargon (language). 4) Assume HelloFresh SH's CFO Mr. Christian Gaertner expects an earnings upturn resulting increase in growth (rate) of 1%. How does this affect your answers to Question 2 and 3? 5) AACSB Critical Thinking Questions: A) Companies pay rating agencies such as Moody's and S&P to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. Why do you think they do it? (Textbook page: 198) B) What are the difficulties in using the PE ratio to value stock?…
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 49%. Portfolios A and B are both well diversified. Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.6 2.4 39 B 2.3 -0.7 9 Required: What is the expected return–beta relationship in this economy?
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B (bB). please show all workings and not merely : Ra = 1/2 rbRf = 1/4 Ra
Suppose there are two independent economic factors, M₁ and M2. The risk-free rate is 7%, and all stocks have independent firm- specific components with a standard deviation of 43%. Portfolios A and B are both well diversified. Portfolio A B Beta on M1 1.5 2.4 Beta on M2 2.5 -0.5 Expected Return (%) 33 11 Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(rp) = 7.00 % + BP1 + BP2
Suppose that there are two independent economic factors, F₁ and F₂. The risk-free rate is 6%, and all stocks have independent firm- specific components with a standard deviation of 45%. The following are well-diversified portfolios: Portfolio Beta on F1 A B E(rp) 1.5 2.2 = What is the expected return-beta relationship in this economy? (Do not round intermediate calculations.) Beta on F2 2.0 -0.2 % + (Bp1 x Expected Return 31% 27% %) + (Bp2 x
Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B (bB). (please show all workings)
According to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0 is:a. Between rM and rf .b. The risk-free rate, rf .c. β(rM − rf).d. The expected return on the market, rM.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS