Quiz_06CAPM

# Quiz_06CAPM - expected return of 20 and volatility of 40...

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UGBA103-F08 Friday, 21 Nov-2008 Quiz VI: CAPM UGBA 103 1. The stock of Apple has a correlation coefficient of 0.3 with the market. The volatility of Apple is 50% and the volatility of the market is 20%. Suppose the risk free rate is 5% and that a portfolio with a market beta of 1 has an expected return of 10%. Calculate the expected return of Apple if the CAPM holds! 2. Draw a qualitative graph of a 2-stock portfolio ( mean vs. standard deviation ) for the case that the stocks are a) perfectly positively correlated, b) perfectly negatively correlated and c) uncorrelated. You may use one diagram if you clearly label the cases. Assume stock 1 has an
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Unformatted text preview: expected return of 20% and volatility of 40% whereas stock 2 has an expected return of 10% and a volatility of 20%. DO NOT calculate anything for this exercise! 3. Hedge Fund XYZ claims to deliver an expected return of 20% and volatility of less than 20%. Is this superior to the market (assuming the claim is correct)? Assume that the market delivers an expected return of 10% and has a standard deviation of 10%. The risk-free rate is 5%. Name: ________________ SID # : ________________ Section Number _________ Answer to #1: ____________________ Answer to #3: ____________________...
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## This note was uploaded on 10/02/2009 for the course UGBA 08547 taught by Professor Odean during the Spring '09 term at Berkeley.

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