This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: BM 410 HW#17 Multiple Choice 1. BKM, problem 6 of Chapter 7 (parts a and b only), p. 223. a. False. β = 0 implies E(r) = r f , not zero. b. False. Investors require a risk premium for bearing systematic (i.e., market or undiversifiable) risk. c. (not required) False. You should invest 0.75 of your portfolio in the market portfolio, and the remainder in T-bills. Then: β P = (0.75 × 1) + (0.25 × 0) = 0.75 2. BKM, problems 8-13 of Chapter 7, pp. 223-224 #8 Not possible. Portfolio A has a higher beta than Portfolio B, but the expected return for Portfolio A is lower. #9 Possible. If the CAPM is valid, the expected rate of return compensates only for systematic (market) risk as measured by beta, rather than the standard deviation, which includes nonsystematic risk. Thus, Portfolio A's lower expected rate of return can be paired with a higher standard deviation, as long as Portfolio A's beta is lower than that of Portfolio B....
View Full Document
- Fall '10
- Capital Asset Pricing Model, Modern portfolio theory, sharpe ratio