Reference no: EM13496306
1.When the CAPM correctly prices risk, the market portfolio is an efficient portfolio. Explain why.
2.A big pharmaceutical company, DRIg, has just announced a potential cure for cancer. The stock price increased from $5 to $100 in one day. A friend calls to tell you that he owns DRIg. You proudly reply that you do too. Since you have been friends for some time, you know that he holds the market, as do you, and so you both are invested in this stock. Both of you care only about expected return and volatility. The risk-free rate is 3%, quoted as an APR based on a 365-day year. DRIg made up 0.2% of the market portfolio before the news announcement.
a. On the announcement your overall wealth went up by 1% (assume all other price changes canceled out so that without DRIg, the market return would have been zero). How is your wealth invested?
b. Your friend’s wealth went up by 2%. How is he invested?
3.Your investment portfolio consists of $15,000 invested in only one stock—Microsoft. Suppose the risk-free rate is 5%, Microsoft stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an expected return of 10% and a volatility of 18%. Under the CAPM assumptions,
a. What alternative investment has the lowest possible volatility while having the same expected return as Microsoft? What is the volatility of this investment?
b. What investment has the highest possible expected return while having the same volatility as Microsoft? What is the expected return of this investment?
|
Calculate return on investment
: Calculate return on investment(ROI) for each division using operating income as a measure of income and total assets as a measure of investment.
|
|
Advise chatswood pty ltd as to its fringe benefits tax
: Discuss whether Peter would be entitled to any deductions in respect of the interest expenditure incurred from 1 January 2012 to 30 June 2012 for the 2011/2012 income year.
|
|
Evaluate the temperature of the gas in degrees celsius
: 53.5 g of an ideal gas of molecular weight = 10.5 g/mol is confined at a pressure of 50 kPa. The density of the gas is 0.164 g/L. Compute the temperature of the gas in degrees Celsius.
|
|
Calculate how many loops does the wire make
: A square wire 2.0 cm on each side is oriented so that 5.00 mT magnetic field makes a 30 degree angle with the normal to the plane of the square. how many loops does the wire make
|
|
What investment has the highest possible expected return
: Your investment portfolio consists of $15,000 invested in only one stock—Microsoft. Suppose the risk-free rate is 5%, Microsoft stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an expected return of 10% and a ..
|
|
What is the speed of each proton
: A beam of protons moves in a circle of radius 0.34 m. The protons move perpendicular to a 0.29-T magnetic field. What is the speed of each proton
|
|
Evaluate the temperature of the gas in degrees celsius
: 53.5 g of an ideal gas of molecular weight = 10.5 g/mol is confined at a pressure of 50 kPa. The density of the gas is 0.164 g/L. Compute the temperature of the gas in degrees Celsius.
|
|
What is the maximum kinetic energy of the body
: A body is suspended vertically from an ideal spring of spring constant 3.4 N/m. The spring is initially in its relaxed position. What is the maximum kinetic energy of the body
|
|
Discuss the impacts of early maturation
: Over the past decade we have seen significant changes in the age in which children are reaching puberty. As a result the child might be prepared physically, but not emotionally for the changes when they occur. Discuss the impacts of early matu..
|