Question

1. Capital markets in Flatland exhibit trade in four securities, the stocks X, Y, and Z, and a riskless government security. Evaluated at current prices in U.S. dollars, the total market values of these assets are, respectively, $24 billion, $36 billion, $24 billion, and $16 billion. (6 pts.)
   1. Determine the relative proportions of each asset in the market portfolio.
   2. If an investor holds risky assets in proportion to their market values and divides their aggregate portfolio of $100,000 with $30,000 invested in the riskless asset, how much is invested in securities X, Y, and Z?
2. Suppose the risk-free rate is 0.10 and a security with a beta of +1 has an equilibrium expected rate of return of 0.15. What is the equity market premium? (1 pts.)

Answer 1

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JUST WRITTEN IN EXCEL, NO EXCEL FUNCTION IS USED