Buying risky security than by buying risk-free asset

Assignment Help Financial Management

Reference no: EM132031363

Suppose there are only two risky firms in an economy. The total value of the shares in firm A is 5 billion and the total value of the shares in firm B is 7 billion. For firm A the standard deviation of the returns to its shares is 20% and the expected return is 12%. For firm B the standard deviation is 30% and the expectedd return is 16%. There is also a risk free asset with a rate of return of 5% and total value of 5 billion. The assumptions of the CAPM hold. What is the expected return on a portfolio consisting 50% in the risk free asset and 50% in the market portfolio, and can you ever reduce your risk more by buying a risky security than by buying a risk-free asset?

Reference no: EM132031363

Questions Cloud

Features and advantages of critical illness insurance : Explain the features and advantages of Critical Illness insurance.

What is the minimum shipping cost : Find the number of pairs shipped from each warehouse to each outlet to minimize the shipping costs. What is the Minimum shipping cost?

What is expected return and standard deviation : What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds?

What are the proceeds from the sale : If Emerson sold the bonds on August 1 for 109.50, what are the proceeds from the sale? Please help me with this problem.

Buying risky security than by buying risk-free asset : Can you ever reduce your risk more by buying a risky security than by buying a risk-free asset?

What is the total cost of the purchase : What is the total cost of the purchase? What are the proceeds on the sale? What is the gain (or loss) on the transaction.

What are the dividends due the preferred shareholders : What are the dividends due the preferred shareholders? What is the dividend per share of common stock?

Seconds required for object to reach a velocity : Assume that the air resistance is proportional to the square of the velocity, then the time t in seconds required for an object to reach a velocity v in feet

Employing capital asset pricing model : What is the estimated cost of common equity, employing the Capital Asset Pricing Model (CAPM)?

User Account

All Pages