Question

A portfolio invests in a risk-free asset and the market portfolio has an expected return of 7% and a standard deviation of 10%. Suppose risk-free rate is 5%, and the standard deviation on the market portfolio is 22%. For simplicity, assume that correlation between risk-free asset and the market portfolio is zero and the risk-free asset has a zero standard deviation. According to the CAPM, which of the following statement is/are correct?

a. This portfolio has invested roughly 54.55% in the market portfolio

b. This portfolio has a reward to risk ratio that is higher than market average

c. This portfolio beta is roughly 0.5455

d. Market risk premium is roughly 6.6%

e. Statements a and b are both correct

Answer #1

According to the CAPM, the following statement is correct

Market risk premium is roughly 6.6%

Market beta is equal to 1, so if Option A were correct then Option C would have to be correct as well (beta of portfolio=54.55%*1=0.5455). But we can select only one option and there is no Option which says Option A and Option C are correct. Therefore, we can rule out Option, Option C, Option E (because in Option E, if A were correct then C would also have to be correct). Option B is incorrect because as per CAPM, the reward to risk ratio of any portfolio can not be higher than market average and also, as the portfolio is created using market portfolio and risk free asset, the reward to risk must be equal to that of the market portfolio.

We are left with Option D

a) Suppose the risk-free rate is 4.4% and the market portfolio
has an expected return of 10.9%. The
market portfolio has variance of 0.0391. Portfolio Z has a
correlation coefficient with the market of 0.31
and a variance of 0.3407. According to the capital asset pricing
model, what is the beta of Portfolio Z?
What is the expected return on Portfolio Z?
b) Suppose Portfolio X has beta of 1 with expected return of 11.5%.
Draw the SML and comment...

A portfolio that combines the risk-free asset and the market
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deviation of 10.4 percent. The risk-free rate is 4.4 percent, and
the expected return on the market portfolio is 12.4 percent. Assume
the capital asset pricing model holds.
What expected rate of return would a security earn if it had a .49
correlation with the market portfolio and a standard deviation of
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5)
A portfolio that combines the risk free asset and the market
portfolio has an expected return of 7% and a standard deviation of
10%. The risk free rate is 4%, and the market returns (expected) is
12%. What expected return would a security earn if it had a
correlation of 0.45 ewth the market portfolio and a standard
deviation of 55%.?
Suppose the risk free rate is 4.8% and the market portfolio has
an expected return of 11.4%. the...

The expected return on the market is 12%; the risk-free rate is
3%; the beta of your portfolio is 1.17; and the standard deviation
of your portfolio is 17%.
Which of the following statements is true?
A. The expected return on your portfolio is 1.17 times 12%
B. The reward to risk ratio for your portfolio is 1.17/0.17.
C. The market risk premium is 9%.
D. There is not enough information to determine the expected
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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...

5. The market portfolio expected return is 6% and its standard
deviation is 15%. The risk-free rate is 0.5%. What are the expected
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in the risk-free asset and 50% in the market?

Suppose that the market portfolio has an expected return of 10%,
and a standard deviation of returns of 20%. The risk-free rate is
5%.
b) Suppose that stock A has a beta of 0.5 and an expected return
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1. The
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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
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Suppose the risk-free
rate is 4.8 percent and the market portfolio has an expected return
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Portfolio Z has a correlation coefficient with the market
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According to the
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The expected market return is 9%. The risk-free rate, 1.5%. Your
risky asset XYZ has a beta of 0.85 and an expected return of
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Select one:
a. Your asset XYZ is perfectly priced in the market.
b. Your asset XYZ is underpriced in the market.
c. No answer
d. Your asset XYZ is overpriced in the market.
e. There is not enough data to answer.

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