Capital Asset Pricing Model and Answer Score Explanation
(10 points) Suppose CAPM works, and you know that the expected returns on Walmart and Amazon are estimated to be 12% and 10%, respectively. You have just calculated extremely reliable estimates of the betas of Walmart and Amazon to be 1.30 and 0.90, respectively. Given this data, what is a reasonable estimate of the risk-free rate (the return on a long-term government bond)? (Enter the answer with no more nor less than two decimal places, and leave off the % sign. For example, if your answer is 13.97% you should enter it as 13.97 NOT 0.14 nor 14)ABOUT mensajeantonio ~ Smile! You’re at the best WordPress.com site ever
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Assignment 8
25
Tuesday
Jun 2013
Posted by preguntasdemiscursos in finance ≈ Leave a comment
TagsFinance
Question 1
(5 points) According to the principle of diversification, the only way to lower the risk of a portfolio you must add assets that are negatively correlated with your existing portfolio.
Your Answer Score Explanation
False 5.00 Correct. You understand how diversification works.
Total 5.00/5.00
Question Explanation
Simple but important question about diversification.
Question 2
(10) You have an equally weighted portfolio that consists of equity ownership in three firms. Firm A is trading at $23 per share and has a beta of 1.15; Firm B is trading at $16 per share with a beta of 1.60; Firm C is trading at $76 per share with a beta of 0.85. Assume a risk free rate of 2% and market return of 7%. If each stock has a standard deviation of 40% and the stocks have a correlation of 0.20 with each other, your portfolio’s expected return is closest to
Your Answer Score Explanation
8% 10.00 Correct. You appear to understand expected returns of both securities and portfolios.
Total 10.00/10.00
Question Explanation
To figure out the expected return on this, or any, portfolio. Important for making any type of investment decision.
Question 3
(10 points) You have a portfolio that consists of
Search:
mensajeantonio
Assignment 8
25
Tuesday
Jun 2013
Posted by preguntasdemiscursos in finance ≈ Leave a comment
TagsFinance
Question 1
(5 points) According to the principle of diversification, the only way to lower the risk of a portfolio you must add assets that are negatively correlated with your existing portfolio.
Your Answer Score Explanation
False 5.00 Correct. You understand how diversification works.
Total 5.00/5.00
Question Explanation
Simple but important question about diversification.
Question 2
(10) You have an equally weighted portfolio that consists of equity ownership in three firms. Firm A is trading at $23 per share and has a beta of 1.15; Firm B is trading at $16 per share with a beta of 1.60; Firm C is trading at $76 per share with a beta of 0.85. Assume a risk free rate of 2% and market return of 7%. If each stock has a standard deviation of 40% and the stocks have a correlation of 0.20 with each other, your portfolio’s expected return is closest to
Your Answer Score Explanation
8% 10.00 Correct. You appear to understand expected returns of both securities and portfolios.
Total 10.00/10.00
Question Explanation
To figure out the expected return on this, or any, portfolio. Important for making any type of investment decision.
Question 3
(10 points) You have a portfolio that consists of