Across an asset that pays no dividends

Assignment Help Financial Management

Reference no: EM13873935

You have come across an asset that pays no dividends but has an expected price of $100 an year from now. The correlation of this asset with the market portfolio is believed to be 0.5. The standard deviation of the return is believed to be 30%. The risk free rate of return is 4%, and the expected return on the market portfolio is 14% with a standard deviation of 20%. a. If the price of this asset is $80 today, according to CAPM should you be buying or short selling this asset (or just selling it if you actually own it). b. If all participants in the market followed your strategy what would happen to the price of this asset, and respectively its return? c. According to the CAPM at what price should investors attempt to neither buy nor sell shares of this asset?

Reference no: EM13873935

Questions Cloud

Franklin roosevelt and adolph hitler both came to power : Franklin Roosevelt and Adolph Hitler both came to power in 1933

The way that can be done to preserve the milk : The way that can be done to preserve the milk that is free of pathogenic microorganisms is .........A. heated to boilingB. stored in the refrigerator

Developing a project proposal : Developing a project proposal - determining the project topic

Differences in the methods of religion and science : You don't have to have an opinion concerning the question. If you choose to do so, you can present both the similarities and differences in the methods of religion and science, and then declare that you aren't sure which is most fundamental

Across an asset that pays no dividends : You have come across an asset that pays no dividends but has an expected price of $100 an year from now. The correlation of this asset with the market portfolio is believed to be 0.5. The standard deviation of the return is believed to be 30%. Accord..

An allele of a gene contains a two base deletion : An allele of a gene contains a two base deletion in the first exon. Would this mutation cause a loss of gene function? Why?

Running an arose gel and after staining : Suppose that you are running an agarose gel and after staining, you find that the bands have run off the end of the gel. When you run the gel again, what are all the possible things you could change about the gel and/or how you run it to avoid this p..

Using the capital retention approach : Richard is using the capital retention approach to determine how much life insurance to purchase. Richard would like to provide $45,000 per year to his family, forever, if he dies. If life insurance proceeds can be invested to earn a 5 percent annua..

Explain the role of planning in that service area : Prepare a 300 word paper, using the service area chosen One for your Government Relationships Paper

User Account

All Pages