Question

If the simple CAPM is valid, which of the situation in Tables below are possible? Explain. Consider each situation independently

A.) Portfolio Expected Return Standard Deviation

Risk Free Rate 5% 0%

Market 21% 22%

A 20% 10%

B.) Portfolio Expected Return Beta

Risk Free 10% 0

Market 18% 1.0

A 22% 2

Answer #1

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If the simple CAPM is valid, is the situation below possible?
You need to provide explanation for it, just yes or no is not
acceptable.
Portfolio
Expected return
Standard deviation
Risk free
8%
0
Market
18%
24
Portfolio A
20%
22

If the simple CAPM is valid and all portfolios are priced
correctly, which of the situations below is possible? Consider each
situation independently, and assume the risk-free rate is 5%.
A)
Portfolio
Expected
Return
Beta
A
14
%
1.4
Market
14
%
1.0
B)
Portfolio
Expected
Return
Standard
Deviation
A
17
%
14
%
Market
12
%
22
%
C)
Portfolio
Expected
Return
Beta
A
17
%
1.4
Market
12
%
1.0
D)
Portfolio
Expected
Return
Beta
A
21.2
%...

If the simple CAPM is valid and all portfolios are priced
correctly, which of the situations below is possible? Consider each
situation independently, and assume the risk-free rate is 5%.
A)
Portfolio
Expected
Return
Beta
A
11
%
1.1
Market
11
%
1.0
B)
Portfolio
Expected
Return
Standard
Deviation
A
14
%
11
%
Market
9
%
19
%
C)
Portfolio
Expected
Return
Beta
A
14
%
1.1
Market
9
%
1.0
D)
Portfolio
Expected
Return...

If the simple CAPM is valid and all portfolios are priced
correctly, which of the situations below is possible? Consider each
situation independently, and assume the risk-free rate is 5%.
A)
Portfolio
Expected
Return
Beta
A
11
%
1.1
Market
11
%
1.0
B)
Portfolio
Expected
Return
Standard
Deviation
A
14
%
11
%
Market
9
%
19
%
C)
Portfolio
Expected
Return
Beta
A
14
%
1.1
Market
9
%
1.0
D)
Portfolio
Expected
Return
Beta
A
17.6
%...

If the simple CAPM is valid, is the situation shown below
possible?
Portfolio
Expected Return
Beta
Risk-free
7
%
0
Market
19
%
1.2
A
14
%
1.7
a. Possible
b. Not possible

If the simple CAPM is valid and all portfolios are priced
correctly, which of the situations below is possible? Consider each
situation independently, and assume the risk-free rate is 5%.
A)
Portfolio
Expected
Return
Beta
A
16
%
1.1
Market
16
%
1.0
B)
Portfolio
Expected
Return
Standard
Deviation
A
19
%
11
%
Market
14
%
19
%
C)
Portfolio
Expected
Return
Beta
A
19
%
1.1
Market
14
%
1.0
D)
Portfolio
Expected
Return
Beta
A
21.5
%...

Consider the following information:
Portfolio
Expected Return
Beta
Risk-free
8
%
0
Market
10.2
1.0
A
8.2
0.7
a. Calculate the expected return of portfolio
A with a beta of 0.7. (Round your answer to 2
decimal places.)
b. What is the alpha of portfolio A.
(Negative value should be indicated by a minus sign. Round
your answer to 2 decimal places.)
c. If the simple CAPM is valid, is the above
situation possible?
Yes
No

Consider the following information:
Portfolio
Expected Return
Beta
Risk-free
12
%
0
Market
13.8
1.0
A
11.8
0.9
a. Calculate the expected return of portfolio
A with a beta of 0.9. (Round your answer to 2
decimal places.)
Expected return
%
b. What is the alpha of portfolio A.
(Negative value should be indicated by a minus
sign. Round your answer to 2 decimal
places.)
Alpha
%
c. If the simple CAPM is valid, is the above
situation possible?
Yes...

Assume the CAPM holds. The risk-free rate is 5% and the market
portfolio expected return is 15% with a standard deviation of 20%.
An asset has an expected return of 16% and a beta of 0.8.
a) Is this asset return consistent with the CAPM? If not, what
expected return is consistent with the CAPM?
b) How could an arbitrage profit be made if this asset is
observed?
c) Would such a situation be expected to exist in the longer...

Below is the returns of the market portfolio and stock A in the
2 possible scenarios. The probability of the boom scenario and the
recession scenario are both 50%. Please estimate the beta
coefficient for stock A. (Show all work)
Market Portfolio
Stock A
Boom
25%
20%
Recession
-10%
-8%
Continuing the previous question. The risk-free interest rate is
2%. According to the beta you estimated in the last question, what
is the expected return for stock A according to...

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