Reference no: EM131944450
Suppose we have one risky asset Stock I and a risk-free asset. Stock I has an expected return of 25% and a beta of 2. The risk-free asset’s return is 6%.
a. Calculate the expected returns and betas on portfolios with x% invested in Stock I and the rest invested in the risk-free asset, where x% = 0%, 25%, 75%, 100%, 125%, and 150%.
b. What reward-to-risk ratio does Stock I offer? How do you interpret this ratio?
c. Suppose we have a second risky asset, Stock J. Stock J has an expected return of 20% and a beta of 1.7. Calculate the expected returns and betas on portfolios with x% invested in Stock J and the rest invested in the risk-free asset, where x% = 0%, 25%, 75%, 100%, 125%, and 150%.
d. What reward-to-risk ratio does Stock J offer? How do you interpret this ratio?
e. Plot the portfolio betas against the portfolio expected returns for Stock I on a graph, and link all the points together with a line. Then plot the portfolio betas against the portfolio expected returns for Stock J on the same graph, and link all these points together with another line.
f. Use the graph in part (e) above, together with your answers to parts (b) and (d) above to explain why Stock J is an inferior investment to Stock I.
g. Can a situation in which one stock is inferior to another stock persist in a well organized, active market? Why or why not?
|
Application of the lower cost or market to value inventory
: What is the proper application of the lower cost or market to value inventory?
|
|
Business property exemplifies fully non taxable exchange
: Which of the following situations involving an exchange of business property exemplifies a fully non taxable exchange?
|
|
Annuity consideration
: How much will your parents have to save each year for next five years in addition to $6,900 they are currently saving to have necessary funds.
|
|
Find the npv of the given cash flows
: Find the NPV of the given cash flows, Assume the discount rate to be 9%
|
|
Calculate expected returns and betas on portfolios
: Calculate the expected returns and betas on portfolios with x% invested in Stock I and the rest invested in the risk-free asset, where x% = 0%, 25%, 75%, 100%,
|
|
What is the one day return of the equal-weighted index
: An equal-weighted index is comprised of three stocks. what is the one day return of the equal-weighted index?
|
|
What annual contributions to the retirement fund
: What annual contributions to the retirement fund will allow you to receive the $24,000 annuity?
|
|
People flows to analyze the impact of the brexit
: From the perspective of People flows to analyze the impact of the Brexit. People flows includes Migrants, Tourists , International Students.
|
|
What is the duration of the critical path of the network
: What is the duration of the critical path of this network. What is the float for activity G. What is the total float of activity E.
|