Question

Consider a CAPM universe. The variance of the return on the factor portfolio is .03. The beta of a well-diversified portfolio is 1.5. The variance of the return of the well-diversified portfolio is

0.0525 |
||

0.0675 |
||

0.0725 |
||

None of the above |

Answer #1

Consider the one-factor APT. The variance of the return on the
factor portfolio is 0.08.
The variance of the return on the Asset A is 0.01. The beta of
Asset A is:
A. At least 0.125
B. At most 0.125
C. At least 0.354
D. At most 0.354

If you were to consider the CAPM as a one-factor model, then the
factor would be the:
rate of inflation.
market risk
premium.
GNP.
risk-free rate.
individual beta of each security or portfolio.

A- The CAPM says that the average return on a stock should be at
least the return on a riskless asset and compensation for
bearing
choose one of the following:
1-firm-specific risk. 2-market risk. 3-firm-specific and market
risk. 4-alpha risk. 5- beta risk. 6- alpha and beta risks.
B- Since the market portfolio beta is equal to
---------------------a stock with a beta of 1.00
is---------------------the market portfolio.
choose two of the following for each blink:
1- 0 2- 1 3-100...

Consider a one factor economy where the risk free rate is 5%,
and portfolios A and B are well diversified portfolios. Portfolio A
has a beta of 0.6 and an expected return of 8%, while Portfolio B
has a beta of 0.8 and an expected return of 10%. Is there an
arbitrage opportunity in this economy? If yes, how could you
exploit it?

Consider a one factor economy where the risk free rate is 5%,
and Portfolios A and B are well diversified portfolios.
Portfolio A has a Beta of 0.6 and an expected return of 8%
Portfolio B has a Beta of 0.8 and an expected return of 10%
Is there an arbitrage opportunity in this economy? If yes, how
could you exploit it?
Please explain the steps

Consider the single factor APT. Portfolio A has a beta of 0.5
and an expected return of 12%. Portfolio B has a beta of 0.4 and an
expected return of 13%. The risk-free rate of return is 5%. If you
wanted to take advantage of an arbitrage opportunity, you should
take a short position in portfolio _________ and a long position in
portfolio _________.

Consider the single factor APT. Portfolio A has a beta of 0.55
and an expected return of 11%. Portfolio B has a beta of 0.90 and
an expected return of 16%. The risk-free rate of return is 3%. Is
there an arbitrage opportunity? If so, how would you take advantage
of it?

Consider an economy with two factors. You identify three
well-diversified portfolios A, B and C. Their details are:
Portfolio
Expected return
Beta (1st factor)
Beta (2nd factor)
A
28%
0.75
1.8
B
18%
0.25
1.1
C
28%
1.25
1.5
What is the risk-free rate in this economy? Show your
calculations

You are given the opportunity to invest in a well-diversified
portfolio with expected return of 12% and beta of 1.5. The
risk-free rate is 2% and the market risk premium is 8%. Should you
invest?

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.)...

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