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CaHeK987 [17]
2 years ago
15

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 6.5 percent and a standard devi

ation of 9.5 percent. The risk-free rate is 3.5 percent, and the expected return on the market portfolio is 11.5 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .40 correlation with the market portfolio and a standard deviation of 54.5 percent?
Business
1 answer:
mario62 [17]2 years ago
4 0

Answer: Step 1) Find share of market in the Portfolio

(11.5-3.5)x+3.5=6.5

8x=3

x=3/8

x=0.375

=37.5%

SD of market portfolio= 0.375x+0=9.5

x=9.5/0.375

=25.33%

correl = cov / (std 1 * std2)

0.4=COV/0.2533*0.545

COV= 0.2533*0.545*0.4=0.05

cov of 2 assets = b1 * b2 * variance of market

0.05=B1*1*0.2533^2

B of security=0.0032

Capm Model

3.5+0.0032(11.5-3.5)=3.5256% expected return

Explanation:

Step 1) Find the share of market in the portfolio in order to find market SD

Step 2)  Find Covariance betweens security and market by using both SDS and correlation

Step 3) Find Beta of Security using Co variance

Step 4) Use the Beta in CAPM model in order to find expected return

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3 years ago
Angelo invested $4,000 into two accounts. One account paid 4% interest and the other paid 9% interest. He earns 6% interest on t
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Answer:

$2,400 was placed in the account earning 4%, and $1,600 was placed in the account earning 9%

Explanation:

In this case, we have two unknowns, so in order to be solved, we need to find two equations.

We know that amount 1, that we call x, plus amount 2, we call y, is 4000.  

<em>x + y = 4000</em>

Also we know, when we add the interest earned on amount 1 to the interest earned on amount 2, the total interest is 6% of 4000, it means: 240

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So, we have two equations with two unknowns

<em>x + y = 4000</em>

<em>0.04x+0.09y=240</em>

That we can solve for any method we know. We will use substitution.  Lets clear from first equation the unknown x.

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And we solve:

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Now we simply plug this into our first equation and solve for x

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So, $2,400 was placed in the account earning 4%, and $1,600 was placed in the account earning 9%

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3 years ago
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Answer:

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where,

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Basically we added the base salary and the commission amount for computing the total salary

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3 years ago
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