Ask Question
BusinessBusiness
24 September, 18:19

Consider the following information: Portfolio Expected Return Beta Risk-free 5 % 0 Market 11.2 1.0 A 9.2 1.9 a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.9. (Round your answer to 2 decimal places.) b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) c. If the simple CAPM is valid, is the situation above possible? Yes No

+2
Answers (1)
  1. 24 September, 18:34
    0
    The calculations are shown below:

    Explanation:

    The calculations are shown below:

    a. The expected rate of return is

    Return = Risk free return + Beta * (Market return - risk free return)

    = 5% + 1.9 * (11.20% - 5%)

    = 5% + 11.78%

    = 16.78%

    b. Now the alpha is

    Alpha = Actual rate of return - Expected rate of return

    = 9.2% - 16.78%

    = - 7.58%

    c. No, the CAPM is not valid as the expected rate of return is more than the actual rate of return
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Consider the following information: Portfolio Expected Return Beta Risk-free 5 % 0 Market 11.2 1.0 A 9.2 1.9 a. Calculate the return ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
Sarah and First Financial Corp. enter into an oral employment contract under which First Financial Corp. agrees to hire Sarah for five years. Before Sarah begins, First Financial Corp. backs out of the contract.
Answers (1)
Grocery, inc., and dave's market enter into a contract for the delivery of locally grown produce. the parties use a standard grocery, inc. form that contains some of the terms the parties agree on but not others.
Answers (1)
Grab Manufacturing Co. purchased a 10-ton draw press at a cost of $180,000 with terms of 5/15, n/45. Payment was made within the discount period. Shipping costs were $4,600, which included $200 for insurance in transit.
Answers (1)
True or false when ownership transfers from on party to another, so do benefits and burdens
Answers (1)
Financial reporting by not-for-profit, nongovernmental entities should provide information useful in: a) Assessing management stewardship and performance. b) Assessing services and the ability to continue to providing services.
Answers (2)
New Questions in Business
The market system's answer to the fundamental question "how will the goods and services be produced?" is essentially
Answers (1)
You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12.1 million, which will be depreciated straight-line to zero over its four-year life.
Answers (1)
What is the difference is between saving and investing?
Answers (2)
Which of the following is not an example of a cost and its related cost driver? Cost Cost Driver A. Rent Square feet B. Transportation Miles driven C. Direct labor hours Indirect labor D. Utilities Machine hours
Answers (1)
Glass walls a. can be easily broken and with the elimination of those barriers, people can get ahead. b. enable peoples talents and success to be seen by those on the other side. c.
Answers (1)
Home » Business » Consider the following information: Portfolio Expected Return Beta Risk-free 5 % 0 Market 11.2 1.0 A 9.2 1.9 a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.9. (Round your answer to 2 decimal places.) b.
Sign Up Forgot Password?