Question

A- The CAPM says that the average return on a stock should be at least the...

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 4- relatively less risky than. 5- relatively more risky than. 6- equally as risky as.

C- In the CAPM, firm-specific risk is:

choose one of the following :

1-An important part of the CAPM equation. 2-Ignored because investors hold a fully diversified portfolio. 3-Part of market risk. 4-Part of the minimum variance portfolio.

D- In the CAPM, the market portfolio is the---------------------in an investment opportunity set composed of all risky traded assets.

choose one of the following: 1- minimum variance portfolio. 2- tangency portfolio.

E- Suppose the return on a riskless asset is 4% and the market risk premium is 7%,  According to the CAPM, a stock with a beta of 0.5 will have an expected return of:

Type your answer using percent expression.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A- 2-market risk. Since CAPM assumes that the portfolio is fully diversified so the only risk remaining is the systematic risk or market risk.

B- Since the market portfolio beta is equal to 1 a stock with a beta of 1.00 is equally as risky as the market portfolio.

C- 2-Ignored because investors hold a fully diversified portfolio.

D- 2- tangency portfolio. Since market portfolio is the optimal risky portfolio.

E- Expected return = 4% + 0.5*(7% - 4%) = 5.5%

Please do rate me and mention doubts, if any, in the comments section.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
True false: 1. Under the CAPM, investors require a rate of return that is proportional to...
True false: 1. Under the CAPM, investors require a rate of return that is proportional to the volatility of each asset.   2. The simple average of all equity betas in a market must equal exactly 1, by construction. 3. All assets and portfolios that plot on the Capital Market Line have returns that are perfectly positively correlated with the market portfolio. 4. A firm that operates in rural areas, and is more exposed to bush fire risk, will have a...
QUESTION 1 Under the CAPM, investors require a rate of return that is proportional to the...
QUESTION 1 Under the CAPM, investors require a rate of return that is proportional to the volatility of each asset.   True False QUESTION 2 The simple average of all equity betas in a market must equal exactly 1, by construction. True False QUESTION 3 All assets and portfolios that plot on the Capital Market Line have returns that are perfectly positively correlated with the market portfolio. True False QUESTION 4 A firm that operates in rural areas, and is more...
What CAPM inputs are the same for every project? What CAPM inputs are specic to your...
What CAPM inputs are the same for every project? What CAPM inputs are specic to your project? What asset has a beta of 1? What is the appropriate market rate of return for a security with a beta of 1? What asset has a beta of 0? What is the appropriate market rate of return for a security with a beta of 0? Do projects that have high variance, but whose risk can be diversied away in our portfolio, need...
Consider two stocks, A and B. Stock A has an expected return of 10% and a...
Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.1. Stock B has an expected return of 16% and a beta of 1.2. The market degree of risk aversion, A, is 4. The variance of return on the market portfolio is 0.0175. The risk-free rate is 5%. Required: (4*2.5 = 10pts) A. What is the expected return of the market? B. Using the CAPM, calculate the expected return of stock A....
The risk-free rate of interest is 2%. Stock AAA has a beta of 1.4 and a standard deviation of return = .40. The expected return on the market portfolio is 9%. Assume CAPM holds.
1.             The risk-free rate of interest is 2%.  Stock AAA has a beta of 1.4 and a standard deviation of return = .40.  The expected return on the market portfolio is 9%. Assume CAPM holds.  (Note:  the questions below are independent not sequential.)a)             Plot the security market line.  Label all axes of your graph.  Plot (and label) the points (and numerical values) corresponding to the market portfolio, the risk-free asset, and stock AAA.b)            Your current wealth is $1,000.  What is the expected returnfor a portfolio where youborrow$500 at the risk-free...
Use the required return-beta equation from the CAPM. 1. What is the required return if the...
Use the required return-beta equation from the CAPM. 1. What is the required return if the risk-free rate is 3%, beta 1.5 and the required return for the market portfolio is 8%? 2. What is the risk-free rate if beta is 1.1, the required return 8.4% and the required return for the market portfolio is 8%? 3. What is beta if the risk-free rate is 3%, the required return 10% and the required return for the market is 8%? 4....
Finance questions (please answer 1, 2 and 3) 1. If the hypothetical equilibrium is achieved based...
Finance questions (please answer 1, 2 and 3) 1. If the hypothetical equilibrium is achieved based on CAPM model, market portfolio should be the only risky portfolio that all investors hold. Is the above statement true or false? Give explanations. 2. Sophia and John create their investment portfolios by splitting their wealth between optimal risky portfolio and the riskless T-bills. Sophia invests 30% of her wealth in optimal risky portfolio and 70% in riskless T-bills. John invests 30% of his...
Asset Alpha Beta with respect to market index Idiosyncratic variance 1 0.02 0.9 0.33 2 0.005...
Asset Alpha Beta with respect to market index Idiosyncratic variance 1 0.02 0.9 0.33 2 0.005 1.6 0.19 In addition, there is the market portfolio, which has an expected return of 8.7% and a variance of 0.14, and the riskless asset, which returns 3.1%. 3A. Using the index model, what should the weights of Assets 1 and 2 be, assuming the beta of your actively managed portfolio is 1? 5 points 3B. Assuming the beta of your actively managed portfolio...
1.) According to the CAPM, what is the expected return on a security given a market...
1.) According to the CAPM, what is the expected return on a security given a market risk premium of 9%, a stock beta of 0.57, and a risk free interest rate of 1%? Put the answers in decimal place. 2.)   Consider the CAPM. The risk-free rate is 2% and the expected return on the market is 14%. What is the expected return on a portfolio with a beta of 0.5?   (Put answers in decimal points instead of percentage) 3.) A...
Manipulating CAPM   Use the basic equation for the capital asset pricing model ​(CAPM​) to work each...
Manipulating CAPM   Use the basic equation for the capital asset pricing model ​(CAPM​) to work each of the following problems. a.  Find the required return for an asset with a beta of 0.54 when the​ risk-free rate and market return are 6 ​% and 8 % ​, respectively. b.  Find the ​risk-free rate for a firm with a required return of 6.368 ​% and a beta of 0.26 when the market return is 11 % . c.  Find the market...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT