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If the simple CAPM is valid, is the situation shown below possible? Portfolio Expected Return Beta A 20% 1.4 B 25% 1.2

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2P: APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...

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Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

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If the simple CAPM is valid, is the situation shown below possible? Portfolio Expected Return Beta A
20% 1.4 B 25% 1.2

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If the simple CAPM is valid, is the situation shown below possible? Portfolio Risk-free Market A Expected Return 10% 19% 17% Is the above situation possible? Beta 0 1.2 1.7 Possible Not possible
APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?
If E(rX)=0.12 and E(rY)=0.08, what would be the expected rate of return of a portfolio made of 30% of X and 70% of Y? A. 0.080 B. 0.120 C. 0.108 D. 0.092 E. 0.100
Using the following data: Scenario Probability return K1 return K2 0.2 -10% 5% W2 0.4 0% 30% W3 0.4 20% -5% compute the weights in the portfolio with minimum risk. What are the expected return and risk of this minimum risk portfolio?
If the simple CAPM is valid, is the situation shown below possible? Portfolio Risk-free Market A Expected Return 6% 17% 12% O Possible O Not possible Beta 0 1.0 .9
Use the required return-beta equation from the CAPM What is the required return if the risk-free rate is 4%, beta 1.5 and the expected market return 8%? What is the risk-free rate if beta is 1.1, the required return 8.4% and the expected market return 8%? What is beta if the risk-free rate is 4%, the required return 12% and the expected market return 8%? What is the expected market return if the risk-free rate is 4%, beta 1.5 and the required return 12%?
If the simple CAPM is valid, is the situation shown below possible? Expected Return 20% 25% Portfolio A B Possible O Not possible Beta 1.4 1.2
Given an optimal risky portfolio with expected return of 20%, standard deviation of 24%, and a risk free rate of 7%, what is the slope of the best feasible CAL? A. 0.64 B. 0.14 C. 0.33 D. 0.62 E. 0.54
Q. The market rate of return is 14%, beta is 1.5 and the required rate of return is 18.5%. What is risk-free rate of return?
Given an optimal risky portfolio with expected return of 16%, standard deviation of 20%, and a risk-free rate of 4%, what is the slope of the best feasible CAL? A. 0.14 B. 0.31 C. 0.60 D. 0.36 E. 0.08
Example of CAPM Equation: Case Risk free Rate (Rf) Market return (Km) Beta (b) Required Return A 5% 8% 1.30 ? B 8% 13% 0.90 ? C 10% 15% -0.20% ? D ? 12% 1.0 12% E 6% ? 0.60 9% F 5% 16% ? 10% Required: Using CAPM equation, compute the missing value (?)
If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently. Portfolio Expected Return Standard Deviation A 30% 35% B 40% 25%