Question

Portfolio Risk and Return. Suppose that the S&P 500, with a beta of 1.0, has an...

Portfolio Risk and Return. Suppose that the S&P 500, with a beta of 1.0, has an expected
return of 13% and T-bills provide a risk-free return of 4%. (LO12-2)
a. What would be the expected return and beta of portfolios constructed from these two assets
with weights in the S&P 500 of (i) 0; (ii) .25; (iii) .5; (iv) .75; (v) 1.0?
b. On the basis of your answer to (a), what is the trade-off between risk and return, that is, how
does expected return vary with beta?
c. What does your answer to (b) have to do with the security market line relationship?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 11%...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 11% and T-bills provide a risk-free return of 4%. a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the value of Expected return...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14%...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 14% and T-bills provide a risk-free return of 5%. a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter the value of Expected return...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10%...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10% and Treasury bills provide a risk-free return of 4%. a. How would you construct a portfolio from these two assets with an expected return of 8%? Specifically, what will be the weights in the S&P 500 versus T-bills b. How would you construct a portfolio from these two assets with a beta of 0.4? c. Find the risk premiums of the portfolios in (a)...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10%...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10% and T-bills provide a risk-free return of 4%. a. How would you construct a portfolio from these two assets with an expected return of 8%? Specifically, what will be the weights in the S&P 500 versus T-bills? b. How would you construct a portfolio from these two assets with a beta of 0.4? c. Find the risk premiums of the portfolios in (a) and...
security beta Standard deviation Expected return S&P 500 1.0 20% 10% Risk free security 0 0...
security beta Standard deviation Expected return S&P 500 1.0 20% 10% Risk free security 0 0 4% Stock d ( ) 30% 13% Stock e 0.8 15% ( ) Stock f 1.2 25% ( ) 5) A complete portfolio of $1000 is composed of the risk free security and a risky portfolio, P, constructed with 2 risky securities, X and Y. The optimal weights of X and Y are 80% and 20% respectively. Given the risk free rate of 4%....
security beta Standard deviation Expected return S&P 500 1.0 20% 10% Risk free security 0 0...
security beta Standard deviation Expected return S&P 500 1.0 20% 10% Risk free security 0 0 4% Stock d ( ) 30% 13% Stock e 0.8 15% ( ) Stock f 1.2 25% ( ) 4) You form a complete portfolio by investing $8000 in S&P 500 and $2000 in the risk free security. Given the information about S&P 500 and the risk free security on the table, figure out expected return, standard deviation, and a beta for the complete...
A well-diversified portfolio P has an expected return of 5% and a beta of 1.3. The...
A well-diversified portfolio P has an expected return of 5% and a beta of 1.3. The risk-free rate is 2.3% and the expected return on the S&P 500 is 8%. a) What is the portfolio's expected alpha? Enter your answer as a decimal. b) What should you do? Buy the security or Short-sell the security? Why?
You are trying to assess the risk and return of your portfolio. You put a quarter...
You are trying to assess the risk and return of your portfolio. You put a quarter of your money in small stocks with a beta of 2.8 and an expected return of 18%. You put half your money in large stocks with a beta of 1.8 and an expected return of 12%. You invest one-eighth of your money in a well-diversified portfolio like the S&P 500 index with a beta of 1 and an expected return of 8%, and the...
a.) Consider a one-factor economy. Portfolio A has a beta of 1.0 on the factor, and...
a.) Consider a one-factor economy. Portfolio A has a beta of 1.0 on the factor, and portfolio B has a beta of 2.0 on the factor. The expected returns on portfolios A and B are 11% and 17%, respectively. Assume that the risk-free rate is 6%, and that arbitrage opportunities exist. Suppose you invested $100,000 in the risk-free asset, $100,000 in portfolio B, and sold short $200,000 of portfolio A. What would be your expected profit from this strategy? b.)...
Security Y is a risk-free security with an expected return of 5%. Security Z has an...
Security Y is a risk-free security with an expected return of 5%. Security Z has an expected return of 10% with an associated standard deviation of 28%. Find the expected portfolio return and standard deviation for the following portfolios: Weight of Y Weight of Z 20% 80% 40% 60% 60% 40% 80% 20% Does the slope of the expected portfolio return versus portfolio risk (measured as standard deviation) change? Answer this question by comparing the slope between the first two...