Question

(i) The risk-free rate of return is 6% and the return on the market portfolio is 9.5%. What is the expected return from shares in companies in Zambia and South Africa if: (1) The beta factor for company Zambia shares is 3.25. [2 Marks] (2) The beta factor for company South Africa shares is 0.90. [2 Marks] (ii) The return on shares of company Zambia is 12%, but its normal beta factor is 1.12. The risk-free rate of return is 6 % and the market rate of return is 9%. Calculate the abnormal return (alpha factor). [6 Marks]

Answer #1

Answer:

(1)

Rfr = 6%

Return on market = 9.5%

Zambia beta = 3.25 and South Africa beta = 0.90

Expected return from shares in companies in Zambia = Rfr + B(Return on market - Rfr)

= 6% + 3.25(9.5% - 6%)

**= 17.375%**

Expected return from shares in companies in South Africa = Rfr + B(Return on market - Rfr)

= 6% + 0.90(9.5% - 6%)

**= 9.15%**

(2)

Actual Return on shares of company Zambia = 12%

Beta = 1.12, Rfr = 6% and Market return = 9%

Expected return = Rfr + B(Return on market - Rfr)

= 6% + 1.12(9%-6%)

= 9.36%

Abnormal return = Actual return - Expected return

= 12% - 9.36%

**= 2.64%**

1.2. The risk-free rate is 6%, the expected return on the market
portfolio is 14%, and the standard deviation of the return on the
market portfolio is 25%. Consider a portfolio with expected return
of 16% and assume that it is on the efficient frontier.
1.2.1. Calculate the beta of this portfolio (4).
1.2.2. Calculate the standard deviation of its return (5).

If the expected rate of return on the market portfolio is 14%
and the risk free rate is 6% find the beta for a portfolio that has
expected rate of return of 10%. What assumptions concerning this
portfolio and or market condition do you need to make to calculate
the portfolio’s beta? b. what percentage of this portfolio must an
individual put into the market portfolio in order to achieve an
expected return of 10%?

The risk-free rate of return is currently 3.9 percent and the
market portfolio return is estimated to be 14.7 percent. The
expected returns and betas of four shares are as follows: Share
Beta Expected Return (%) A 1.47 19.78 B 1.40 18.72 C 0.90 13.62 D
1.61 21.29 According to CAPM which stocks are overvalued?
D and A
C and D
Only B
Only D
Only A

If the risk-free rate is 6 percent and the market risk premium
is 9.5% and below are the details of your portfolio: Security
Amount Invested Beta A $50,000,000 0.1 B $60,000,000 0.3 C
$40,000,000 0.7 What is the required rate of return of your
portfolio? A- 0.34% D-7% C-6% B-9.23%

If the risk-free rate is 6 percent and the market risk premium
is 9.5% and below are the details of your portfolio: Security
Amount Invested Beta A $50,000,000 0.1 B $60,000,000 0.3 C
$40,000,000 0.7 What is the required rate of return of your
portfolio? A- 0.34% D-7% C-6% B-9.23%

The risk free rate is 6%, the expected rate of return on the
market portfolio is 8%. Cure-Covid Corp (CCC) is selling for $80 in
the market right now. You estimate that CCC's dividends will grow
at 2.5% a year indefinitely. CCC's earnings in one year are
expected to be $20 and CCC pays out 60% of its earnings as
dividends. What is the beta of CCC? Expected Dividends = 20 *
60%

Suppose that the risk-free rate is 6 percent and the
expected return on the market portfolio is 15
percent. An investor with $1.5 million to invest wants to achieve a
25 percent return on a
portfolio combining the risk-free asset and the market portfolio.
Calculate how much this
investor would need to borrow at the risk-free rate in order to
establish this target expected
return. Provide your final answers up to two decimal points.

Suppose that the risk-free rate is 6 percent and the expected
return on the market portfolio is 15 percent. An investor with $1.5
million to invest wants to achieve a 25 percent return on a
portfolio combining the risk-free asset and the market portfolio.
Calculate how much this investor would need to borrow at the
risk-free rate in order to establish this target expected return.
Provide your final answers up to two decimal points.

Suppose that the risk-free rate is 6 percent and the expected
return on the market portfolio is 15 percent. An investor with $1.5
million to invest wants to achieve a 25 percent return on a
portfolio combining the risk-free asset and the market portfolio.
Calculate how much this investor would need to borrow at the
risk-free rate in order to establish this target expected return.
Provide your final answers up to two decimal points

If the return on portfolio A is 13%, the market portfolio return
is 8%, the inflation rate is 4%, the risk-free rate is 5%, the
standard deviation of the return for portfolio A is 8% and the
standard deviation of the return on the market portfolio is 14%,
and the portfolio A’s beta is 0.8, the Jensen’s alpha for market
portfolio will be 5.60%.
A. True
B. False
If the return on portfolio A is 6%, the market portfolio return...

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