Author Question: Assume that the capital market is in equilibrium, the risk free rate is 2, and the return on the ... (Read 92 times)

Mr. Wonderful

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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?
 
  A) -0.4, 1.4
  B) -0.1, 1.1
  C) 0.2, 0.8
  D) 0.4, 0.6
  E) 0.4, -1.4

Question 2

Rose bought a share of stock for 64.50 that paid a dividend of .50 and sold nine months later for 64.00. What was her dollar profit or loss and holding period return?
 
  A) 0.50, 0.78
  B) -0.50, -0.78
  C) 0.00, 0.00
  D) There is no correct solution to this question.



tranoy

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Answer to Question 1

A

Answer to Question 2

Answer: C
Explanation: C) Profit = Ending Value + Distributions - Original Cost
Profit = 64.00 + 0.50 - 64.50 = 0.00.
HPR = = = 0.00.



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