FIN3300 Solution Ch13 (M 0809)

FIN3300 Solution - Solution Chapter 13 Return risk and the Security Market Line Page 433 Questions 13 15 17 18 20 13 CAPM states the relationship

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Solution Chapter 13: Return, risk, and the Security Market Line Page 433 Questions: 13, 15, 17, 18, 20 13. CAPM states the relationship between the risk of an asset and its expected return. CAPM is: E(R i ) = R f + [E(R M ) – R f ] × β i Substituting the values we are given, we find: E(R i ) = .052 + (.11 – .052)(1.05) = .1129 or 11.29% 15. Here we need to find the expected return of the market using the CAPM. Substituting the values given, and solving for the expected return of the market, we find: E(R i ) = .135 = .055 + [E(R M ) – .055](1.17) E(R M ) = .1234 or 12.34% 17. a. Again we have a special case where the portfolio is equally weighted, so we can sum the returns of each asset and divide by the number of assets. The expected return of the portfolio is: E(R p ) = (.16 + .048)/2 = .1040 or 10.40% b. We need to find the portfolio weights that result in a portfolio with a β of 0.95. We know the
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This note was uploaded on 05/18/2011 for the course FINANCE Fin3300 taught by Professor Mosley during the Summer '10 term at CSU East Bay.

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FIN3300 Solution - Solution Chapter 13 Return risk and the Security Market Line Page 433 Questions 13 15 17 18 20 13 CAPM states the relationship

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