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3 years ago

6

Assume that both X and Y are well-diversified portfolios and the risk-free rate is 8%. Portfolio X has an expected return of 14%

and a beta of 1. Portfolio Y has an expected return of 9.5% and a beta of .25. In this situation, you would conclude that portfolios X and Y _________.A. are in equilibriumB. offer an arbitrage opportunityC. are both underpricedD. are both fairly priced

1 answer:

elixir [45]3 years ago

4 0

Answer:

The correct option is A, Portfolios X and Y are in equilibrium

Explanation:

Adopting Miller and Modgiliani Capital Asset Pricing Model formula, the return on both portfolios can be determined:

Expected return=Risk free return+Beta(Market return-Risk free return)

Portfolio X:

Risk free return=8%

Beta=1.0

Expected return=14%

Let market return be MR

14%=8%+1.0(MR-8%)

14%-8%=1.0*(MR-8%)

6%=MR-8%

MR=6%+8%

MR=14%

Portfolio Y:

Risk free return=8%

Beta=0.25

Expected return=9.5%

let market return be MR

9.5%=8%+0.25(MR-8%)

9.5%-8%=0.25MR-2%

1.5%=0.25MR-2%

1.5%+2%=0.25MR

0.25MR=3.5%

MR=3.5%/0.25

MR=14%

Hence both portfolios are at equilibrium since they have the same market return

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4 years ago

kondaur [170]

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Explanation:

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3 years ago

3. Nghiep gave his mother half of his weekly earnings, and then spent half of what was left on a new shirt. He then had $32. Wha

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Answer:

$128

Explanation:

Given: Nghiep gave half of his weekly salary to his mother.

Spent remaining half on a new shirt.

Finally he is left with $32

Lets assume Nghiep´s weekly earning be "x".

As given, Nghiep gave his mother half of weekly earning.

∴ Remaining earning= $x- \frac{x}{2}$

Taking LCD as 2

⇒ Remaining earning= $\frac{2x-x}{2} = \frac{x}{2}$

Hence, remaining salary giving half earning to his mother is $\frac{x}{2}$

Now, as given Nghiep spent half of what was left on a new shirt.

∴ Amount spent on shirt= $\frac{x}{2} \times \frac{1}{2} = \frac{x}{4}$

Next, finding the amount left with Nghiep after spending on shirt.

⇒ Amount left after spending on shirt= $\frac{x}{2} - \frac{x}{4}$

taking LCD as 4

⇒ Amount left after spending on shirt= $\frac{2x-x}{4} = \frac{x}{4}$

As given, Nghiep left with $32 after spending on shirt.

∴ We can form an equation for amount left with Nghiep after spending on shirt.

⇒ $\frac{x}{4} = 32$

Now, solving it to find the weekly earning of Nghiep.

⇒ $\frac{x}{4} = 32$

Multiplying both side by 4.

⇒ $x= 32\times 4$

∴ $x= \$ 128$

Hence, Nghiep´s weekly earning is $128.

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4 years ago