Home / Questions / Assume that security returns are generated by the single-index model Rai ßiRM ei Where Ri...
Assume that security returns are generated by the single-index model, R_{i}=a_{i}+ß_{i}R_{M}+ e_{i}
Where R_{i}is the excess return for security i and RM is the market’s excess return. The risk free rate is 2%. Suppose also that there are three securities A, B, and C, characterized By the following data:
Security |
ß_{i} |
E(R_{i} ) |
µ(e_{i}) |
A |
0.8 |
10% |
25% |
B |
1 |
12% |
10% |
C |
1.2 |
14% |
20% |
a.If =M = 20%, calculate the variance of returns of Securities A, B, and C.
b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and Crespectively. If one forms a well-diversified portfolio of type Asecurities, what will be the mean and variance of the portfolio’s excess returns? What about portfolios composed only of type Bor Cstocks?
c.Is there an arbitrage opportunity in this market? What is it? Analyze the opportunity graphically.
Jun 24 2020 View more View Less
What are some examples of recruitment strategies? How does your organization incorporate technological advances in its recruiting strategies? How effective are these stra...
May 08 2020Stock Y has a beta of 1.6 and an expected return of 16.6 percent. Stock Z has a beta of 0.8 and an expected return of 9.4 percent. What would the risk-free rate have to b...
Aug 11 2020Please derive T+(m +z) - au 7T (8.1) Using the equation below: = Pe (1 + m) (1 - P alu+z) ...8.2) O
Jun 02 2020Show that if a single-component system is such that PVk is constant in an adiabatic process (k is a positive constant) the energy iswhere is an arbitrary function.
Jun 09 2020Temperature distribution in a hot-wire anemometer, a hot-wire anemometer is essentially a fine wire, usually made of platinum, which is heated electrically and exposed to...
Jun 11 2020If the population number suddenly changed as well as the amount of capital but the capital-labor ratio remains the same, does the steady state not change or does it chang...
Mar 19 2020Two infinitely long parallel plates of width w are located at w distance apart, as shown in the figure. Using the Hottel’s crossed-strings method, determine the view factor F12
Jul 19 2020A radiometer can be used to determine the position of an approaching hot object by measuring the amount of irradiation it detects. Consider a radiometer placed at a dista...
Jul 19 2020Write a paper in which you articulate how a defendant’s rights at trial can be assured. Include how to assure a defendant is provided the following:The right to a speedy ...
Feb 04 2020The perfect bridge hand. According to a morning news program, a very rare event recently occurred in Dubuque, Iowa. Each of four women playing bridge was astounded to not...
Aug 07 2020