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Author Question: Assume that the capital market is in equilibrium, the risk free rate is 2%, and the return on the ... (Read 36 times)

imanialler

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Question 1

AssetExpected ReturnBeta
Stock A9%0.9
Stock B11%1.4
Risk-Free Asset5%
Consider the assets outlined in the table above. Which asset offers the best risk-return trade-off?
◦ Stock A
◦ Stock B
◦ The risk-free asset
◦ Either Stock A or Stock B as both have the same risk-return trade-off

Question 2

Assume that the capital market is in equilibrium, the risk free rate is 2%, and the return on the market is 12%. You want to construct a portfolio on the SML with an expected return of 16%. What are the portfolio weights?
◦ -0.4, 1.4
◦ -0.1, 1.1
◦ 0.2, 0.8
◦ 0.4, 0.6
◦ 0.4, -1.4


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Marked as best answer by imanialler on Apr 25, 2021

vkodali

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imanialler

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Reply 2 on: Apr 25, 2021
Excellent


zacnyjessica

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

 

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