What would be the expected return and beta of portfolios

Assignment Help Financial Management

Reference no: EM131088057

Suppose that the S&P 500, with a beta of 1, has an expected return of 9% and T-bills provide a risk-free return of 5%. a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.5; (iv) 0.75; (v) 1? (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.) b. On the basis of your answer to (a), what is the trade-off between risk and return, that is, how does expected return vary with beta? Slope of the return %

Reference no: EM131088057

Questions Cloud

What is the standard deviation of portfolio : John’s portfolio consists of $1000 in XYZ stock and $4000 in ABC. Historically XYZ has had an average return of 16% annually with a standard deviation of 30%. Historically ABC has an average return of 24% annually with a standard deviation of 40%. Wh..

Assisting with internal heating and cooling cost reduction : Morris Glass Company has decided to invest funds for the next 5 years so that development of “smart” glass is well funded in the future. This type of new-technology glass uses electrochrome coating to allow rapid adjustment to sun and dark in buildin..

What is the upper limit of their cash balance : The Cynster Corp. requires that their cash balance never dip below $100. The standard deviation of their monthly net cash flows is $200. The interest rate is 1% per month. The fixed transaction cost is $10. What is the optimal cash balance? What is t..

What discount rate should the firm use for the project : Gnomes R Us is considering a new project. The company has a debt-equity ratio of .82. The company’s cost of equity is 14.7 percent, and the aftertax cost of debt is 8 percent. What is the company’s WACC? What discount rate should the firm use for the..

What would be the expected return and beta of portfolios : Suppose that the S&P 500, with a beta of 1, has an expected return of 9% and T-bills provide a risk-free return of 5%. a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0;..

Calculate the after-tax cash flow at disposal : Bryers purchases an asset for $15826. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. Br..

Discount glassmakers free cash flows-interest tax savings : Best Window & Door Corporation is considering the acquisition of Glassmakers Inc. Glassmakers has a capital structure consisting of $5 million (market value) of 11% bonds and $10 million (market value) of common stock. What discount rate should you u..

Determines the chains average occupancy rate : Five Seasons Hotel is a chain with 10 hotels. Strategically, the chain implements a cookie-cutter approach to building and running its hotels, in that all hotels are practically identical. determines the chain’s average occupancy rate—the percent of ..

What is the total rate of return on the stock : A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $2 per share and sells for $48. a.) What is the total rate of return on the stock? b.) What are the dividend yield and percentage capital gain?

User Account

All Pages