Maurice Tutor

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    Argosy University/ Phoniex University/
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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 27 Feb 2018 My Price 8.00

CAPM, PORTFOLIO RISK

CAPM, PORTFOLIO RISK, AND RETURN  Consider the following information for three stocks, Stocks X, Y, and Z. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.)

 

 

Stock

Expected Return

Standard Deviation

Beta

X

9.00%

15%

0.8

Y

10.75

15

1.2

Z

12.50

15

1.6

 

Fund Q has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.)

a.        What is the market risk premium (rM - rRF)?

b.       What is the beta of Fund Q?

c.        What is the expected return of Fund Q?

d.       Would you expect the standard deviation of Fund Q to be less than 15%, equal to 15%, or greater than 15%? Explain.

Answers

Maurice Tutor
(5)
Status NEW Posted 27 Feb 2018 07:02 PM My Price 8.00

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