What is the expected rate of return on the market portfolio

Assignment Help Financial Management

Reference no: EM131880287

1) In 1997, the yield (or rate of return) on short-term government securities (perceived to be risk-free) was about 5%. Suppose the expected rate of return required by the market for a portfolio with a beta of 1.0 is 12%. According to the CAPM,

(a) What is the expected rate of return on the market portfolio?

(b) What would be the expected rate of return on a zero-beta stock?

(c) Suppose you consider buying a share of stock at a price of $40. The stock is expected to pay a dividend of $3 next year and to sell then for $41. The stock risk has been evaluated at = 0:5. Is the stock overpriced or underpriced?

2) Two fund managers are comparing performance. One averaged 19% return and the other a 16% return. However, the beta of the Örst fund was 1.5, while that of the second was 1.0.

(a) Can you tell which fund manager was a better selector of individual stocks (aside from the issue of general movements in the market)?

(b) If the T-bill rate were 6% and the market return during the period were 10%, which manager would be the superior stock selector?

Reference no: EM131880287

Questions Cloud

What is percentage price change of these bonds : If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead?

How do factors considered in calculating the index reflect : Specifically, how do factors considered in calculating the index reflect globalization? Why do you agree (or disagree) with this calculation

Discuss some possible effects of global warming : Discuss some possible effects of global warming. Discuss ocean acidification and its possible long-term effects.

How article supports the management of change requirements : Discussion of how the article supports the Management of Change requirements in OSHA's PSM Standard.

What is the expected rate of return on the market portfolio : What is the expected rate of return on the market portfolio? What would be the expected rate of return on a zero-beta stock?

Describe the primary structures in animal cells : Describe the primary structures in animal cells. Explain the role of each structure in animal cells. Explain howanimal cells make energy for cellular processes.

Determine qsd and set up floating-for-floating rate swap : Determine the QSD and set up a floating-for-floating rate swap where the swap bank receives .125 percent a

What is the probability that temple wins all remaining : What is the probability that Temple wins ALL remaining games in the regular season (all the ones listed in the above table)?

Write summary about the mentioned topic : Read Knowledge Management Among the Older Workforce (strategic human resources 4e).

User Account

All Pages