Question

Which of the following assets would be expected to have the highest and lowest returns, respectively?...

Which of the following assets would be expected to have the highest and lowest returns, respectively?

Asset A           Std. dev. = 11%                      Beta = 1.5

Asset B           Std. dev. = 10%                      Beta = 1.3

Asset C           Std. dev. = 12%                      Beta = 0.9

Asset D           Std. dev. = 15%                      Beta = 0.5

Multiple Choice

  • Asset D; Asset B

  • Asset A; Asset D

  • Asset A; Asset B

  • Asset D; Asset A

  • Asset A; Asset C

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Expected return of the stock is based on the beta of that inidividual asset. beta identifies the systematic risk of the asset. Standard deviation identified total risk - systematic and unsystematic risk.

Market does not compensate for unsystematic risk of the asset, since that risk is expected to be diversified away.

Hence, the highest expected return would be for Asset with highest beta, and lowest expected return would be for asset with lowest beta.

So, Highest expected return = Asset A, Lowest expected return = Asset D

Answer: Asset A, Asset D

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
14) Two assets have the following expected returns and standard deviations when the risk-free rate is...
14) Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(rA) = 10% σA = 20% Asset B E(rB) = 15% σB = 27% An investor with a risk aversion of A = 3 would find that _________________ on a risk-return basis. Multiple Choice only asset A is acceptable only asset B is acceptable neither asset A nor asset B is acceptable both asset A and asset B are acceptable
You have been given the expected return data shown in the first table on three assets—F,...
You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2015-2018 Year Asset F Asset G Asset H 2015 9 12 15 2016 8 9 16 2017 5 21 19 2018 13 6 11 a. Find the expected return, variance, std dev and coefficient of variation for each asset. b.  Now consider a portfolio that consists of 25% of F, 50% of G and 25% of H. Find the expected...
Assets X and Y plot on the security market line. Asset X has an expected return...
Assets X and Y plot on the security market line. Asset X has an expected return of 12% and a beta of 1.5, and asset Y has an expected return of 10% and a beta of 1.2. The expected market risk premium is: a) 8.70% b) 9.54% c) 10.20% d) 6.67% e) 9.27%
Suppose that the CAPM is the correct model of expected returns. Which of the following stocks...
Suppose that the CAPM is the correct model of expected returns. Which of the following stocks will have the highest expected return? Group of answer choices A stock with beta of 0.8 and a standard deviation of returns equal to 20% A stock with beta of 0.65 and a standard deviation of returns equal to 27.5% A stock with beta of 0.5 and a standard deviation of returns equal to 35% A stock with beta of 0.6 and a standard...
12. Which of the following aqueous solutions would be expected to have the lowest freezing point?...
12. Which of the following aqueous solutions would be expected to have the lowest freezing point? A) 0.400 m K2SO4 B) 0.400 m NaCl C) 0.400 m C6H12O6 (glucose) D) 0.040 m K2SO4 E) 0.040 m NaCl
Given the following expected returns and risk, which security will be ranked number one. Securities            Standard...
Given the following expected returns and risk, which security will be ranked number one. Securities            Standard Deviation                     Expected Return QVC                          15%                                           18% Apple                        30%                                           40% Google                      35%                                           42% Ann Taylor                 20%                                           12% A. QVC, because it has the lowest risk B. Google, because it has the highest return C.Apple, because it has the lowest coefficient of variation D. Ann Taylor, because it has the highest coefficient of variation
Stocks A and B have the expected returns and standard deviations shown in the table below:...
Stocks A and B have the expected returns and standard deviations shown in the table below: Asset E(R) Std. deviation A 15% 30% B 20% 50% The correlation between A and B is 0.6. The risk-free rate is 3% and you have a risk-aversion parameter of 2. What is the proportion of your investment in A and B, respectively, in your optimal risky portoflio? A. 25.0% in A ; 75.0% in B B. 76.6% in A; 23,4% in B C....
Suppose that assets 1 and 2 are 24% correlated and have the following expected returns and...
Suppose that assets 1 and 2 are 24% correlated and have the following expected returns and standard deviations: Asset E(R) σ 1 14% 9% 2 8% 4% a) Calculate the expected return and standard deviation for a portfolio consisting of equal weights in assets 1 and 2. b) What are the weights of a minimum variance portfolio consisting of assets 1 and 2? What is the expected return and standard deviation of this portfolio? c) Has there been an improvement...
Five investment alternatives have the following returns and standard deviations of returns.         Alternatives Returns: Expected...
Five investment alternatives have the following returns and standard deviations of returns.         Alternatives Returns: Expected Value Standard Deviation A $ 2,070 $ 780 B 1,080 770 C 6,700 10,100 D 1,820 1,200 E 64,200 13,200     Calculate the coefficient of variation and rank the five alternatives from lowest risk to the highest risk by using the coefficient of variation. (Round your answers to 3 decimal places.)   
You are constructing a portfolio of two assets, asset X and asset Y. The expected returns...
You are constructing a portfolio of two assets, asset X and asset Y. The expected returns of the assets are 7 percent and 20 percent, respectively. The standard deviations of the assets are 15 percent and 40 percent, respectively. The correlation between the two assets is .30 and the risk-free rate is 2 percent. Required: a) What is the optimal Sharpe ratio in a portfolio of the two assets? b) What is the smallest expected loss for this portfolio over...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT