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Category > Accounting Posted 04 May 2017 My Price 5.00

Consider a market consisting of only two assets

Consider a market consisting of only two assets, A and B. There are 100 shares of asset A in the market, sold at a price per share equal to $1.00. There are 100 shares of asset B in the market, with a price of $2.00 per share. Asset A has an average return rate μA = 10%, and for asset B, μB = 6%. The risk-free interest rate is R = 5%. Moreover, the standard deviation of the market return is σM = 20%. Assume that the market satisfies the CAPM theory exactly.

a. What is the expected return rate of the market portfolio?

b. Find the beta of asset A and the beta of asset B.

c. What is the covariance σM A of the market with asset A?

d. An investment opportunity in this market offers an average return μ = 6% with standard deviation σ = 19%. Would your portfolio be efficient if you invested all the money in this opportunity? Why?

 

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Alpha Geek
(8)
Status NEW Posted 04 May 2017 12:05 PM My Price 5.00

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file 1493899710-Answer.docx preview (208 words )
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