Infinite number of assets with return characteristics

Assignment Help Finance Basics

Reference no: EM13751659

Problem: Assume that security returns are generated by the single index model.

R_{i =}α_i = βR_M+ e_i

Where R_iis theexcess return for security _i and R_mis the market's excess return. The risk free rate is 4% 3

Suppose also that there are three securities A, B, and C, characterized by the following data.

Security	β_i	E(R_i)	Α (e_i)
A	0.8	15%	24%
B	1.1	18	15
C	1.4	21	18

a. If σ_M= 20%, calculate the variances of return of securities A, B, and C.

b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess return for securities A, B and C?

Reference no: EM13751659

Questions Cloud

Convince the reader that you have read the piece carefully : Communicate to the reader the main points the author is making - Explain clearly the link between the argument the author makes and the evidence they use to support their argument

Demographics of her company have changed dramatically : You have just been hired as the human resources (HR) manager by your company's chief executive officer (CEO). During your interview process, the CEO indicated that in the last 2 decades, the workforce demographics of her company have changed drama..

What specific employment laws will be a factor : What specific employment laws will be a factor. What adverse impact (if any) may be created in using each test, and how could that be minimized

Write a movie review of john adams : Write a movie review of john adams. briefly summarize what you saw or read and briefly explian what your regard as the strengths and weaknesses of your selection in helping you to understand the history depicted or explained.

Infinite number of assets with return characteristics : Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess return for securities A, B and C?

Describe the central elements of amazon''s strategy : How has the company's strategy changed from the original generic strategy that was applied. How would you describe the central elements of Amazon's strategy

What is 1817 agreement whereby spain ceded florida to the us : What is 1817 agreement whereby spain ceded Florida to the US.

Compare alternative healthcare delivery arrangements : Evaluate the efficacy of major types of health clinical outcomes one can use in economic evaluation analysis - Compare and contrast alternative healthcare delivery arrangements

Write a analysis paper on the epic of gilgamesh : Write a Analysis paper on The Epic of Gilgamesh.

User Account

All Pages