Reference no: EM133057564
You have identified four stocks that may be underpriced. As a result, you collected the following information. In addition, the expected market risk premium, the market volatility, and the risk-free rate are assumed to be 8%, 20%, and 4%, respectively.
|
Fund
|
Average Return (%)
|
Standard Deviation (%)
|
Beta
|
|
Stock 1
|
9
|
15
|
0.5
|
|
Stock 2
|
8
|
16
|
0.4
|
|
Stock 3
|
15
|
30
|
1.2
|
|
Stock 4
|
12
|
20
|
0.8
|
(a) If the CAPM holds, what are the expected returns for each of the four stocks? What are the alphas for each of the four stocks?
(b) What are the idiosyncratic volatilities for each of the four stocks?
(c) According to Treynor and Black model, how would you construct a portfolio using the four stocks?
(d) How would you construct a portfolio using the four stocks and the market portfolio?
(e) What is your portfolio beta, expected return, volatility? Do you outperform the market? (hint: compare Sharpe Ratios)
|
Repayment of a home loan in the future
: Mr Zhang has residual income of $75,000 per year which he can put toward the repayment of a home loan in the future. Mr Zhang's Bank insists that he needs to se
|
|
Family medical and leave act-performance appraisals
: Why is the Act so important to American employees and their families? What are the three main reasons for conducting performance appraisals
|
|
Calculate the net present value of both projects
: Mobil Company has hired a consultant to propose a way to increase the company's revenues. Calculate the net present value of both projects
|
|
Discuss the potential influence of decentralissed finance
: Discuss the potential influence of Decentralissed Finance (DeFi) applications on commercial banks. Relate your response to the purpose for the existence of bank
|
|
What are the idiosyncratic volatilities
: In addition, the expected market risk premium, the market volatility, and the risk-free rate are assumed to be 8%, 20%, and 4%, respectively.
|
|
Calculate interest for each bank
: Melvin has $11,900 to invest. He expects to withdraw the money at the end of 9 years. Calculate interest for each bank
|
|
Current event that demonstrates leader recognizing
: Research a current event that demonstrates a leader recognizing the contributions of his/her employees..
|
|
Labelled cash flow diagrams
: Sarah plans to purchase a forward contract on 180-day bank bills, to be delivered at the end of 90 days, with face value of $200,000.
|
|
What can account for increase in market value
: In any given year, the corporate sector retires more shares (in value terms) than it issues in new stock. Still, the value of the stock market increases over ti
|