What is the beta of asset

Assignment Help Financial Management

Reference no: EM131448294

The returns on asset X and the market portfolio M are related as: RX = 0.01 + 0.8Rm + 0.2? where ? is a standard normal variable and uncorrelated with Rm. The expected return on the market portfolio is 15% with a standard deviation of 20%.

A) What is the beta of asset X?

B) Construct the minimum variance portfolio using Rx and Rm

C) Using Rx and Rm, construct the mean-variance efficient portfolio with a target return of 16%. Do you need to have a short position in asset X and/or the market portfolio? what is the risk of the portfolio?

D) Assume there is a risk-free asset and CAPM hold. What is the risk free rate? Is asset X mean-variance efficient? If not, can you find a mean-variance efficient portfolio that has the same expected return as asset X with less risk?

Reference no: EM131448294

Questions Cloud

Outstanding shares of common stock : Blitz Industries has 10 million outstanding shares of common stock, $150 million in debt, $30 million in excess cash, and the following financial forecast for the next four years. Calculate all necessary free cash flows (FCFs) based on the informatio..

Remainder needs to be financed by mortgage : You are planning to buy a new home. The house costs $300,000, but you only have $25,000 in savings that you can use as down-payment. The remainder needs to be financed by a mortgage. Your bank offers a 25-year loan, with fixed annual interest at 7.5,..

Compute the ppp rate of the peseta over the period : Assume the prices indexes in Spain and the U.S are at 100 in January 1981 and at 117 and 105, respectively, in May 1981. Assume the peseta is worth $0.1320 in January 1981 and $0.1185 in May 1981. Compute the PPP rate of the peseta over the period ($..

Accounting information systems relational database : Could you please research and explain what a query is and how it is used to retrieve information from an accounting information systems relational database? Be specific in providing your explanation with examples.

What is the beta of asset : The returns on asset X and the market portfolio M are related as: RX = 0.01 + 0.8Rm + 0.2? where ? is a standard normal variable and uncorrelated with Rm. The expected return on the market portfolio is 15% with a standard deviation of 20%. What is th..

Loan outstanding-requires making four annual payments : You have a loan outstanding. It requires making four annual payments of $1,000 each at the end of the next four years. Your bank has offered to restructure the loan so that instead of making the four payments as originally agreed, you will make only ..

What is the time required to repay the loan : You would like to purchase a house that costs 250,000 and you make a 10% down payment. You borrow the remaining at an APR of 12% semi-annually compounded, to be repaid in monthly installements for the next 25 years. what is the time required to repay..

Equity is strictly smaller than the value of stock investor : Let P be the price of a stock. The investor wants to purchase Q units of this stock. Suppose investor’s equity is E and assume that equity is strictly smaller than the value of the stock investor wants to purchase. As such, the investor receives a lo..

What is the value of the cash flows at year five : Suppose you are analyzing the following possible cash flows: Year 1 = $100; Years 2 and 3 = $200; Years 4 and 5 = $300. The required discount rate is 7%. What is the value of the cash flows at year 5? What is the value of the cash flows today?

User Account

All Pages