What is the internal rate of return for the investor

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a. Over a two year time horizon an investor experiences the following net cash flows:

What is the internal rate of return for the investor?

Demonstrate that a bank deposit offering an annual rate equal to the internal rate of return can replicate the above set of cash flows for the investor.

b. A stock traded at an average price of $30 over the course of a trading day. The covariance of successive transaction price changes (trade-by-trade changes in the price) is about -0.05. Using Roll's model, what is your estimate of the bid-ask spread of the stock (measured in percent of the average price of $30)?

c. The market index has average return 8% and standard deviation 25%. The risk-free rate is 3%. A portfolio 'A' has beta 0.9, idiosyncratic variance of 0.05, and an M2-measure of 0.02. What is the average return on the portfolio?

Reference no: EM132909715

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